Lords Sitting of 25 November 1999

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Blackburn.): The LORD CHANCELLOR on the Woolsack.
Lord Armstrong-Jones
Antony Charles Robert Earl of Snowdon, having been created Baron Armstrong-Jones, of Nymans in the County of West Sussex, for life, took the oath.

Ethical Foreign Policy
Lord Burnham Lord Burnham asked Her Majesty's Government:
What an ethical foreign policy is.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Scotland of Asthal): My Lords, this Government have placed human rights at the heart of foreign policy. We believe in the rights enshrined in the Universal Declaration of Human Rights and core United Nations human rights instruments. We are committed to promoting those rights, working through our bilateral relationships and with our international partners. In implementing this policy, we take account of the characteristics of each situation and use the combination of approaches—of dialogue and pressure—most likely to secure real human rights improvements on the ground.
Lord Burnham: My Lords, I thank the Minister for that estimable reply. However, are those ethics inalienable or do they vary if the country is Chechnya, Burma, East Timor, Kosovo or Pakistan, because it seems that Her Majesty's Government apply a different policy in each case?
Baroness Scotland of Asthal: My Lords, we do not apply a different policy in each case. Consistency does not mean responding in the same way to every conflict, whatever the circumstances. It means deciding how to act against a consistent set of policy considerations; for example, whether all options short of force have been exhausted, whether military intervention is likely to achieve its goals and do more good than harm, and whether it would be responsible to use force if it were likely to be counter-productive. Nor would it be responsible to say that, because we cannot do everything everywhere, we should not do anything anywhere.
Baroness Williams of Crosby: My Lords, perhaps I may express the appreciation of these Benches for the Government's real efforts to do something about human rights. I ask the noble Baroness two questions. First, can she say what position the Government intend to take on the proposed charter on fundamental
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human rights, having discussed it at the European Parliament and in the run-up to the next inter-governmental conference? Secondly, in the light of the recent extremely troubling report to Mr Annan, the Secretary-General of the United Nations, concerning what happened at Srebrenica in 1993, can she say whether the Government are considering clarifying the channel under which UN mandates are agreed so that a clear line of command exists in any future UN operation?
Baroness Scotland of Asthal: My Lords, we are working with our partners to see how the charter can be implemented. Particularly in relation to the comments made by the Secretary-General, Kofi Annan, we are looking very carefully at the report on Srebrenica. Your Lordships will know that the Secretary-General concluded his statements by saying that,
"the cardinal lesson of Srebrenica is that a deliberate and systematic attempt to terrorise, expel or murder an entire people must be met decisively with all necessary means, and with the political will to carry the policy through to its conclusion".
We strongly endorse that conclusion. That is why we took action when we did in Kosovo. We have learned our lessons from history—lessons in which all sides of this House participated—to make sure that we do better in the future.
Lord Wright of Richmond: My Lords, does the Minister agree that a basis for military intervention should not be a statement of the Government's ethical foreign policy, but in all circumstances such intervention should have the authority and backing of a Security Council resolution?
Baroness Scotland of Asthal: My Lords, of course, ordinarily intervention would have the backing of Security Council resolutions. I know that the noble Lord is thinking particularly of the position with which we were all faced in Kosovo. We have said on a number of occasions that that was an exceptional circumstance. It was a last resort and certainly Her Majesty's Government feel—and feel very strongly—that military reactions should always be a matter of last resort as opposed to the first port of call.
Lord Archer of Sandwell: My Lords, does my noble friend agree that that is an area in which virtue is rewarded and that the influence of this country has extended substantially since the days when our decisions were seen to be narrow and selfish?
Baroness Scotland of Asthal: My Lords, I most certainly agree. Our reputation has been enhanced considerably by the stance we have taken with our partners in relation to Kosovo and, indeed, by the way in which we have worked together so effectively in regions such as East Timor.
Lord Moynihan: My Lords, pursuant to the Question posed by my noble friend, in view of the ethical dimension to the Government's foreign policy

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and the Foreign Secretary's promise, echoed by the Minister, to put human rights at the heart of foreign policy, to what extent does the Minister believe that grotesque human rights abuses outweigh national sovereignty? Does the Minister agree that the conflicts in Kosovo, East Timor and Chechnya, and indeed the human rights abuses within China, have all involved significant, abhorrent human rights abuses? Therefore, can the Minister explain the Government's differing responses to those crises within the context of a consistent ethical foreign policy?
Baroness Scotland of Asthal: My Lords, the noble Lord would have me say that there is just one response which we need to give to every situation and every country. If I may respectfully say so, that is naive. Each country has its own challenges, its own difficulties and a differing set of relationships. We and, indeed, any responsible government must analyse that situation, ascertain what are the best methods of securing human rights and then employ them. Those are the ways in which we obtain the best results; not by seeking a quick fix which does not give lasting resolutions to the difficulties.
Lord Avebury: My Lords, does the Minister agree that one of the best methods of promoting human rights is to enhance the resources available to the European Commission on Human Rights and its various procedures. Will the Government therefore make it a high priority to raise the budget of the human rights commission and to promote respect for the decisions made by the human rights commission and for the recommendations made by all the special rapporteurs and working groups?
Baroness Scotland of Asthal: My Lords, the Government have the highest possible regard for the human rights commission. There is and always has been a commitment to ensure that the contributions made are appropriate. Your Lordships would not expect me to make from the Dispatch Box any commitment on figures. However, it is clear that the work is most important and will continue to be so. We act bilaterally on many matters in order to encourage and promote human rights. There is new money available from the Foreign and Commonwealth Office for human rights projects. We have over 330 projects worth over £9.3 million in some 60 countries. If I may express it colloquially, we are putting our money where our mouth is.
Lord Hylton: My Lords, is it not the case that the recent statement by Mrs Bonner, the widow of academician Sakharov, against the current Russian offensive in Chechnya is a fine example of an ethical approach? Will the Government build on it to achieve a peaceful solution?
Baroness Scotland of Asthal: My Lords, the Government are certainly building on all initiatives to try to achieve a peaceful reconciliation in Chechnya.
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These are difficult and troubling times and your Lordships' House has debated this issue on a number of occasions. We are moving forward. There are improvements in the Chechnya-Russian position. Russia now accepts, after the Istanbul summit, that a political solution is the way forward and it is engaging with the international bodies—the OSCE in particular—in trying to find that resolution. It is a very positive move.
Lord Annan: My Lords, I totally agree with what the noble Baroness has said and I applaud the line that she has given the House today. But does she not agree that there is something fundamental which was stated by Lord Carteret in 1743 when he said that the object of foreign policy was to knock together the crowned heads of the kings of Europe and jumble something out of interest to our own country; and our own country's interests must in the end come first?
Baroness Scotland of Asthal: My Lords, our own country's interests do come first, but it is part of our country's interests to promote safety, security and the human rights of others. It is only by promoting those rights that we have security at home for ourselves.

Life Peerages: Appointments Scrutiny
3.11 p.m.
Lord Saatchi Lord Saatchi asked Her Majesty's Government:
When an independent appointments commission will be appointed to scrutinise the creation of life peerages.
The Lord Privy Seal (Baroness Jay of Paddington): My Lords, as I have explained to your Lordships, the Government intend to bring forward proposals for the appointments commission during the current Session of Parliament. The Government propose that the appointments commission should recommend Cross-Bench appointments and vet all new life peerages for propriety.
The Government are also considering their response to a recent letter from the noble Lord, Lord Wakeham, asking for the setting up of the appointments commission to be delayed until the Royal Commission on House of Lords Reform has reported. The letter was copied to the noble Lord the Leader of the Opposition, the noble Lord, Lord Rodgers, and the noble Lord, Lord Weatherill, and I have placed a copy in the Library.
Lord Saatchi: My Lords, does the noble Baroness agree that whenever the appointments commission is finally formed and begins to operate—I shall resist the temptation to read Hansard of 13th May in which the noble Baroness assured the House that the appointments commission would be fully functioning by the beginning of this Session—the first essential for its credibility is that it will behave under terms of

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reference laid down by statute in an Act of Parliament, which will ensure that it is completely independent of any government and any Prime Minister?
Baroness Jay of Paddington: My Lords, I am grateful to the noble Lord for drawing the attention of the House to Hansard of 13th May. I do not think that he took part in any of the proceedings on the House of Lords Bill. Had he done so, he would have taken the point that the noble Lord the Leader of the Opposition moved an amendment to the Bill requiring a statutory appointments commission to be included. It was not until the other place considered the provisions two weeks ago that the amendment could be removed. Of course the person who becomes the chairman of the appointments commission needs to be independent. During the passage of the House of Lords Bill we discussed many times and for many hours whether that would be best done by a statutory process or, in the interim House, by a voluntary non-statutory process. I shall not weary the House by even precising the debates, but the noble Lord can be assured that the Government believe that the interim appointments committee is best set up as what is called a non-departmental public body under the Nolan rules.
Lord Elton: My Lords, in congratulating the noble Baroness on the speedy return of her voice, perhaps I may ask her whether I have understood correctly what she has used it to utter. Are we to take it that the appointment of a body to recommend occupants only of a fraction of the seats in the House and to concern itself with the remainder of the entrants to the House only as to their propriety is to be full and final settlement of the Prime Minister's undertaking to give the whole of his patronage to the commission? If that is the case, it takes something of a stretch of the imagination to do so.
Baroness Jay of Paddington: My Lords, I thank the noble Lord for congratulating me on the return of my voice. I am afraid that it is not totally there yet. With regard to his question, the noble Lord may feel that that is the case, but that has been the Government's consistent position since we published in the White Paper our proposals for the appointments commission for the interim House. I suspect that the concerns expressed by the noble Lord may be reflected in some of the points made by the noble Lord, Lord Wakeham, about the need, as he sees it, to wait until the Royal Commission reports before taking full and final decisions on this matter.
Lord Davies of Oldham: My Lords, has my noble friend noticed that, as one or two politicians on the other side of the House have got into difficulties over recent days, information has dribbled out that they have been rejected At some stage for peerages? Would it not be a good principle of the new body that if anyone was turned down that became public knowledge as well? Would that not be an excellent way of cleaning up public life?
Baroness Jay of Paddington: My Lords, I fully understand my noble friend's concern about the
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possible candidates for peerages who may or may not have been appropriately scrutinised in the past year. It has always been my understanding that one of the reasons for the success of the existing scrutiny committee, which would continue in its different form under the new interim appointments committee, is that its considerations are privileged and are held in private. As my noble friend suggests, this information usually dribbles out in the end anyway.
Lord Strathclyde: My Lords, it is increasingly clear that the noble Baroness does not have any answers to the questions that have been posed. I know that the noble Baroness is an honourable person and she must be as sickened as I am that no appointments commission has yet been set up and, as far as concerns today's announcement, there is no timetable for an appointments commission to be set up. I have already pointed out that it was perfectly possible for the Government to set up the Welsh Assembly and the Scottish Parliament without a Bill having passed through Parliament. Why could not the Government set up an appointments commission? The noble Lord, Lord Wakeham, has written to us. I have replied, as has the noble Lord, Lord Rodgers of Quarry Bank, and I have today sent a copy of my letter to the noble Baroness. It is perfectly possible that she has not seen it. When can the noble Lord, Lord Wakeham, expect a reply from the Government? Can the noble Baroness tell the House whether or not she will accept his recommendation that we should now wait for his report? I believe that putting that into effect will take too long. We should go ahead now and create an appointments commission at the very earliest opportunity.
Baroness Jay of Paddington: My Lords, I am most grateful to the noble Lord for making his position so clear. I look forward with interest to receiving his letter. As I said in my reply to the original Question from the noble Lord, Lord Saatchi, the Government will respond to the noble Lord, Lord Wakeham, very soon. That is entirely appropriate. I saw the letter for the first time last weekend. Other members of the Cabinet need appropriately to be consulted. But there is no question of there being any sinister motive for the delay as the noble Lord foresees it. I received the letter only five days ago.
On the question of whether we could have proceeded with the appointments committee during the summer while the noble Lord's rather obstructive amendment sat within the Bill, I have explained to the House on several occasions—but I shall do so again—that we received advice on this matter from the constitutional authorities who were advising us on the Bill. Perhaps I may remind noble Lords opposite that those were the same constitutional authorities who correctly advised us on, for example, the status of the Writs of Summons and on the Treaty of Union, which noble Lords opposite insisted on referring to the Law Lords for their review. I for one am totally confident in accepting the advice of the constitutional authorities on this question.

St Helena: Supplies
3.19 p.m.
Lord Monson Lord Monson asked Her Majesty's Government:
Whether they plan to take emergency action to get supplies of food, drink, fuel and medicine to St Helena before Christmas following the temporary immobilisation of the only cargo ship regularly supplying the island.
Baroness Amos: My Lords, action has already been taken to ensure that supplies that would have been delivered by the RMS "St Helena" will reach the island before Christmas. Cargo on the RMS "St Helena" at the time of its breakdown will depart from Brest tomorrow and arrive at St Helena on 14th December. Parallel arrangements have been made for the delivery of cargo from Cape Town to arrive at St Helena on 3rd December.
Lord Monson: My Lords, I thank the noble Baroness, Lady Amos, for that excellent news and I congratulate Her Majesty's Government on their commendably prompt action. Presumably this will ensure that the people of the island will not only receive basic necessities but will be able to enjoy a merry Christmas and a festive start to the new millennium. Does the noble Baroness agree that this news will greatly cheer my noble friend Lord Iveagh who, as the House knows, fought valiantly for the rights of the people of St Helena, but who was unfortunately narrowly defeated in the elections three weeks ago?
Baroness Amos: My Lords, I can assure the noble Lord that the cargo and indeed the passengers will arrive in St Helena on time. Perhaps I may say to the noble Lord at this point that the freight includes not only general foodstuffs and frozen foods, but drinks, medical supplies and fuel. In addition, I understand that there are seven Rhode Island Red cockerels and one dog. However, I am unable to tell noble Lords what kind of dog.
I agree with the noble Lord that the noble Lord, Lord Iveagh, did indeed fight long and hard in this House on behalf of St Helenians, and that he would be very pleased with the news today.
Lord Geddes: My Lords, can the noble Baroness advise the House when repairs are expected to be completed on the cargo ship concerned? If those repairs are expected to take a long or even a medium length of time, what arrangements for supplies to St Helena have been made for the period following Christmas?
Baroness Amos: My Lords, I can tell the noble Lord that it is anticipated that the repairs will take around three months. The ship that has been chartered to take cargo from Brest to St Helena will be used to provide an interim service between St Helena, Cape Town and Ascension Island. Following that, the managers of RMS "St Helena" will look at when they can put the original timetable back into place.
Lord Cledwyn of Penrhos: My Lords, is there any possibility that an airport could be built on St Helena?
Baroness Amos: My Lords, air access is an issue that has been raised by the St Helena Government. Indeed, DfID has funded a programme to examine the feasibility of air access. We are now looking at the possibilities of that and we shall know within the coming year the extent to which we will be able to look seriously at that project. Cost is clearly a major consideration.
Baroness Rawlings: My Lords, I was pleased to hear the noble Baroness's clear reply. No doubt, if this is to be a success story it will be claimed by the Foreign Office, but if it is a failure it will be DfID's responsibility. Can the noble Baroness tell the House what co-ordination there has been between the Foreign Office and DfID over this very serious matter? When did they last meet to discuss the issue?
Baroness Amos: My Lords, I assure the noble Baroness that this is the response of Her Majesty's Government. We are committed to joined-up government.

Business
3.23 p.m.
Lord McIntosh of Haringey: My Lords, after the debate on reform of the common agricultural policy, my noble friend Lady Farrington of Ribbleton will, with the leave of the House, repeat a Statement that is being made in another place on local government finance.

Local Government Bill [H.L.]
Baroness Farrington of Ribbleton: My Lords, I beg to introduce a Bill to make provision with respect to the functions and procedures of local authorities and provision with respect to local authority elections; to make provision with respect to grants and housing benefit in respect of certain welfare services; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read a first time.—(Baroness Farrington of Ribbleton.)
On Question, Bill read a first time, and to be printed.

CAP Reform: ECC Report
3.24 p.m.
Lord Reayrose to move, That this House takes note of the report of the European Communities Committee on A Reformed CAP? The outcome of Agenda 2000 (8th Report, Session 1998–99, HL Paper 61).

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The noble Lord said: My Lords, this afternoon we move from the partisan hurly-burly—even at moments it seemed the partisan fury—of a debate on the Address in the new "reformed" House of Lords to what I hope is the serener atmosphere of a debate on a report from one of your Lordships' all-party European sub-committees. The subject of CAP reform, although of very considerable importance, is one on which there is little difference in fundamental policy between the political parties in this country. Accordingly, there was not much trouble for us in producing a unanimous report.
I should like to start by paying a tribute, and placing on record my thanks, to some absent friends. Four of the members of the sub-committee that produced this report were hereditary Peers who have not survived into this Session and so are prevented from taking part in our debate today. These are my noble friend Lord Gisborough, and the noble Lords, Lord Grantchester, Lord Rathcavan, and Lord Redesdale. Their contributions to this inquiry, and to others before it, were immensely important. The House will miss them and I hope that we shall see them back here one day.
I should also like to thank the rest of the sub-committee for their invaluable support, as well as our specialist adviser, Professor John—now Sir John—Marsh, a much loved and admired veteran of many a House of Lords committee inquiry, whose intellectual grasp, robust free-market philosophy and lucidity of thought and expression I hope is reflected in this report. Finally, I should like to thank our Clerk at that time, Mr Jake Vaughan, a young man wise beyond his years.
The subject of CAP reform is one that Sub-Committee D has had to live with for some time, largely of course because it never takes place—at least in any measure that we would consider adequate. When the Commission brought forward its Agenda 2000 proposals two and a half years ago, we conducted an inquiry which focused principally on the agri-environment and rural development measures contained in those proposals.
However, we took time to express in our report disappointment with the failure of the proposals to go anything like far enough to prepare EC agriculture to enable it to compete in a world without subsidies, and towards making the CAP, in the words of the Prime Minister—which we quoted in the report—
"less of a manifest absurdity which discredits Europe".
The report we are debating today was produced some 14 months later, after we had briefly interrupted our inquiry into organic farming in order to see what the Commission's Agenda 2000 proposals looked like once they had been through the Council of Ministers and once they had received the final seal of approval from the Heads of Government at the Berlin Summit in March.
We had a single evidence session with the then Minister with agricultural responsibilities in your Lordships' House, the noble Lord, Lord Donoughue, who was accompanied by an extremely capable official
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from MAFF, Miss Kate Timms, Head of the Agricultural Crops and Commodities Directorate, and we are indebted to them both.
We found that after a long period of negotiation the Council of Farm Ministers finally reached agreement on 11th March this year on a package that represented a considerably less radical reform than that originally proposed by the Commission, with concessions having been made to the anti-reform forces in all commodity sectors. Indeed, so disappointing was the outcome at first seen to be in this country that the Prime Minister's spokesman virtually disowned the deal reached by his Minister of Agriculture and promised a better result when the Heads of Government met in Berlin later in the month.
However, the Berlin Summit produced an even weaker reform package. Noble Lords may remember the way in which President Chirac, himself a former French Minister of Agriculture, single-handedly renegotiated the CAP deal right through the night. I myself suspect that his triumph was only possible because it was considered essential to maintain French co-operation during the Kosovo crisis and the NATO action against Serbia. So the abandonment of a more viable CAP reform emerges as another melancholy consequence of that expensive intervention.
Appendix 2 of our report sets out the details of the Berlin deal and compares them with the Commission's original proposals. There will, of course, still be cuts in commodity intervention and support prices, although in the case of dairy products, these are not to start until 2005. Milk quotas are not to be touched until 2006. The cuts in support prices enable the Government to argue that the agreement will benefit the UK consumer to the tune of £1 billion a year once the reforms are fully implemented in 2008. However, these cuts are offset for the farmer by increases in direct payments which will cost the taxpayer up to 50 per cent of the savings to be enjoyed by the consumer. Moreover, the length of time over which the price cuts will he introduced will make any fall in consumer prices virtually imperceptible. Many of the regimes, such as the sugar regime, for example, will remain untouched. So consumers will continue to pay far more than they need for food.
We are left with a deal that we and the committee consider to be deeply disappointing. It sends the wrong signal to the farming industry, thereby misdirecting investment which is bad for the Community's taxpayers and consumers, and leaves a CAP that will have to be reformed again, as the Minister agreed, before enlargement of the European Union can take place.
The incompatibility of the existing CAP with the completion of the enlargement process is moving into ever-closer focus, especially since the President of the Commission announced last month to the European Parliament that the Commission would recommend to the Helsinki European Council in December the opening of accession negotiations in 2000 with the second-wave applicant countries of Bulgaria, Romania. Latvia, Lithuania, Slovakia and Malta.

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The irresistible force is moving ever closer to the immovable object. What is the Community to do? Is it to extend agricultural price support to those countries as well as to the first-wave applicant countries—Poland, Hungary, Czechoslovakia, Estonia and Slovenia—thereby pushing up agricultural prices in those countries and, as a consequence, depressing consumption and at the same time stimulating production there? Is it also to extend direct payments—arable area payments, headage payments and so on—to the farmers of those countries at untold cost to the Community's taxpayers? Or instead will it force the applicant countries to accept a two-tier CAP in which £30 billion continues to be spent each year on the farmers of the present 15 member states of the Union but none, or vastly less, on the farmers in the new member states? Such an arrangement would make no economic sense and would be like scrapping subsidies to less favoured area in this country and replacing them with subsidies to the south-east. That is why we say that there needs to be further CAP reform before enlargement can take place. Judging from their reply, I believe that the Government are still of that opinion. Even for transitional arrangements to be feasible, there needs to be a commitment to reform.
Parallel to the pressures for reform resulting from the approach to enlargement are those from the new WTO round of negotiations due to start next week in Seattle. The CAP's production-distorting subsidy regimes will certainly come under attack, and the expiry of the peace clause in 2003 will give other countries the chance to challenge the compatibility of the CAP with existing trade commitments, let alone any commitments that may be negotiated in future. Any deal seems certain to result in further CAP reform measures, as last time, but whatever they are, their effect on the ground is, on past experience, at least five to 10 years away.
The CAP is widely seen to have damaged the environment by its over-stimulation of production. An effective redirection of some of the resources currently dedicated to production towards the protection of the environment should be likely to meet with general approval. We welcome the fact that the Berlin agreement contains a new rural development regulation which brings together rural development and agri-environment measures, and that member states will be required to offer farmers agri-environmental programmes, such as our Countryside Stewardship and Environmentally Sensitive Area Schemes. However, we deplore the imbalance between the amount of money available from the Commission for such schemes, which we calculate to be some £8 million plus, and the £3 billion spent annually in this country on the CAP regimes. The amounts available for environmental purposes are, in our opinion, pitifully inadequate.
Cross-compliance, or the attachment of environmental conditions to the payment of CAP subsidies, is permitted under the agreement and, on the face of it, might be an attractive way to have an environmentally friendly policy at little expense.
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However, as a committee we have always been opposed to lending production payments a spurious legitimacy in that way. I am pleased to see from their reply to our report that the Government think likewise. We feel that it would simply further entrench the existing production subsidies and that environmental goals should stand, and be paid for, in their own right. Also, as the element of incentive to the farmer is absent from such arrangements, the policing of these unpopular conditions would require an ugly new bureaucracy.
But there may be other ways in which the agreement gives discretion to national governments to develop resources for environmental schemes. One such is modulation, where within a national financial envelope, national governments may reduce by up to 20 per cent the production subsidies paid to farmers, according to certain criteria. If I understand it correctly, production subsidies could be reduced by up to this percentage across the board to all farmers within a member state, and the proceeds, provided they were matched by funds from the national treasury, could be used to boost agri-environmental schemes. When the Minister winds up perhaps she can confirm whether that is the correct interpretation and, if so, whether the Government have yet taken a decision to move in that direction. Perhaps the Minister can also indicate what other decisions the Government have taken so far in those other areas where they have freedom to exercise national discretion.
The Government have also argued that the Berlin deal, which covers the future financing of the Community as well as CAP reform, was good for Britain because Britain was able to keep its Fontainebleau rebate. We say that it would be better to reform the CAP and remove the main reason why the rebate became necessary in the first place.
We hope that further reform will come. It would be better for agriculture itself in the long term if efficient farmers were given the chance to compete freely in the world—there is much efficient agriculture in this country and in Europe—and if the less efficient received support in a form which the public were happy to endorse. There are reasons to believe that real reform must come one day, but it has not come yet, and I am beginning to ask myself how many of us will still be alive to see it happen. I beg to move.
Moved, That this House takes note of the report of the European Communities Committee on A Reformed CAP? The outcome of Agenda 2000 (8th Report, Session 1998–99, HL Paper 61).—(Lord Reay.)
3.38 p.m.
Lord Tomlinson: My Lords, the Select Committee, in particular Sub-Committee D and the noble Lord, Lord Reay, are to be congratulated on having produced a most cogent report. In so far as the EU gets the agricultural aspects of Agenda 2000 wrong, it creates circumstances which will make enlargement of

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the European Union to the east not only more difficult politically but more costly financially. This is one of the reasons why the report is so timely.
In his evidence to the Select Committee, the noble Lord, Lord Donoughue, said of the Berlin agreement:
"We believe the outcome represented a greater step in the direction of reform of the European Union Agricultural Policy than in fact had been achieved in the last two decades".
That may well be so. If it is correct it is a clear critique of the lack of any real action in the past two decades rather than words of praise for what happened in Berlin.
I have no doubt that the Agenda 2000 deal struck in Berlin has some marginal benefit, even for consumers. I also have no doubt that my right honourable friend the Prime Minister would have liked a substantially more radical outcome. But when one concludes with an agreement where the European Council itself is less radical than agricultural Ministers, and agricultural Ministers are less radical than the Santer Commission, perhaps one can say with reasonable confidence that the Berlin solution will prove inadequate to deal with the problems.
As the noble Lord, Lord Donoughue, said in evidence to the Select Committee,
"it is very hard to identify specific improvements between Brussels and Berlin. In a number of areas, it could be argued that matters went the other way".
In respect of each of the criteria examined by the Select Committee there remains cause for concern. Do the Agenda 2000 proposals promote economic efficiency? Far from it. I believe that they enshrine economic inefficiency, mock the market mechanism and leave burdens to be borne by farmers despite a high level of subsidy which exceeds the total that goes to the rest of British industry. It even further burdens consumers; and it is costly to the budget, failing producer and consumer alike, serving, as I said earlier, to enshrine economic inefficiency.
Does the CAP reform facilitate enlargement? Far from it. I believe that it threatens enlargement. It shackles the European Union financially; and to extend the costly agricultural regimes to current lower cost producer applicant countries would be prohibitive budgetarily in circumstances where there is unlikely to be any agreement to change the own resources base of the European Union. That means that fundamentally it threatens enlargement itself.
Do the so-called reforms of Berlin help us to meet our international obligations? Again I agree with the noble Lord, Lord Reay, and the report that the response must be in the negative. We who are possibly not honouring our existing WTO obligations are producing substantial obstacles with the Berlin agreement to the radical response that we expect to see coming from the next WTO round. I believe that we have already placed obstacles to progress in Seattle. It requires no vision to see that we have worsened our relationship with the Cairns group; and we shall start with an immediate battle as soon as Seattle opens.
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Does it enhance and protect our environment? Looking at the Berlin Summit agreement, there are no reasons to suppose that it will do so any more in the future than in the past.
One could continue. The so-called "reforms" fail adequately to limit over-production in agriculture. This leads to the continuation and extension of subsidised disposal of surpluses which in turn distort world markets, and damage the third world and its aspirations to self-sufficiency. The surpluses and their disposal are a standing invitation to fraud and the fraudsters.
We in the United Kingdom often talk about the need for the European Union to fight fraud more vigorously. Are we necessarily doing that as well as we could in our own country? Our Intervention Board was criticised substantially two years ago by the National Audit Office and the Public Accounts Committee. I ask the Minister to consider whether in her opinion the recently advertised post for a head of the anti-fraud unit of our own Intervention Board is likely to be adequate. The salary offered is £30,000-plus; and a person is sought with his or her own motor car which can be available for work. That seems a rather pathetic response to the issue of dealing with fraud. I do not necessarily ask my noble friend to reply today. However, perhaps the noble Baroness will look at the matter in a more leisurely way and give someone at Reading the invitation to pull his or her finger out and get on with the job of being as vigilant in the public interest in the United Kingdom as we always demand that Brussels should be.
It is a valuable report. In getting agricultural reform wrong we shall damage the European Union budget, our interest in enlargement; the third world interest; the fight against fraud, and our interests in the next World Trade Organisation round. That is a flush hand that no government should be proud of holding.
Berlin leaves no room for complacency. Agricultural reform must remain a constant objective of the Government. But sooner rather than later the rhetoric of reform needs to be matched by quality of decision.
3.46 p.m.
Lord Jopling: My Lords, I declare an interest in that I am a farmer in the north of England. All noble Lords who have been associated with the Select Committee would like to say how grateful we are for the kind and generous remarks of the noble Lord, Lord Tomlinson, about the report and the committee so ably led by my noble friend Lord Reay. It is a great disappointment that he will no longer be chairman in the future.
All my life in Parliament—it is now quite a long time—I have heard people talking about the need to reform the common agricultural policy. Having spent four years of my life at one period as a member of the Council of Agricultural Ministers, I can describe trying to get sensible reforms to this centrepiece of the activities of the European Union as horse work. The management of the common agricultural policy has been dogged forever by a long history of total

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irresponsibility in the way that prices have been set. Over the years, the problem has been that prices were increased in order to provide a continuing livelihood for inefficient farmers, usually in some other countries of the Community other than our own. At the same time those increased prices provided an attractive incentive for efficient farmers throughout Europe hugely to increase production and create the surpluses which have bedevilled the whole system.
The divergence between efficient and inefficient farmers does not necessarily mean large or small farmers. Other factors so often come into the issue. For instance, some farmers find themselves borrowing heavily. They need higher prices in order to compete with efficient farmers who do not owe anyone anything. One has always had, as it were, two different industries within one according to the amount of borrowing by individuals.
At the same time, the CAP has long been bedevilled by the fact that many member countries could merrily agree to irresponsible price increases with the happy knowledge that those higher prices were costing their own national budget nothing. At the heart of the problem, as it has been since the beginning of the CAP, is the tragedy that the increased costs of the CAP did not cost each state at least something. So often, they have been able to agree to higher prices, knowing that they would receive all the benefits and incur none of the cost. Therefore, of course they have always held up their hands to vote for higher prices. It is the higher prices that have created the surplus and the run-away expenditure that has caused nearly all of the difficulties.
In that context, I have always marvelled at the unashamed way in which some Ministers pursue totally irresponsible policies towards the CAP. I shall give just three examples. I remember the time when the German Minister totally refused to contemplate accepting—even to the extent of threatening the veto—any reduction in the level of support prices. Happily, that attitude is now behind us and a reduction in support prices is on the agenda, which in the days when I was involved with the Council was not contemplated by the Germans or others who covered themselves in the skirts of the Germans. A second example was the unashamed way in which, on one occasion, Luxembourg Ministers showed us huge new plantings of vines in the Moselle Valley at a time when we were struggling to find a way of controlling the massive cost of the wine lake surplus with which we were all faced. The final example was our old friend the tobacco regime. Hundreds of millions of pounds were spent in producing varieties of tobacco which had no known demand anywhere in the world. There cannot be anything more lunatic.
As I said, it has been horse work attempting to introduce some responsibility into the CAP over the years. No one knows that better than my noble friend Lord Williamson, who has massive experience as Secretary-General of the European Union. We look forward to hearing his comments. I recall, in 1986, when the British presidency was in existence, having to
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keep the Council of Ministers in continuous session for 91 hours in the face of Christmas in order to inject some form of responsibility into the milk, grain and beef regimes.
In recent years we have seen a gradual move towards more responsibility. The runaway financial burden has been gradually brought under better control. It has a very long way to go. It has been brought under control mainly by means of budget controls imposed by the council of the Heads of Government. It has been helped by a number of other issues, not least various approaches to encourage the environmental policies of the common agricultural policy which are so important and need to be encouraged.
Now we are embarking on yet another effort, following the faltering attempts to bring about the proposals of Agenda 2000 at Berlin. We have now moved on to the Seattle talks, which are the precursor of the new world trade round. In those talks, the CAP will be a major target for negotiators from the United States and the Cairns Group. Their prime target in the talks on the agricultural sector will be the European Union's export subsidies.
My message to the Government is that I hope they will be very tough with the United States in particular, whose representatives like to give the impression that these unfair subsidies exist only in Europe and that the United States is squeaky clean. Many noble Lords will know of my political connections with the United States. I have had the honour to be secretary of the British-American Parliamentary Group for the past 12 years. There is no greater friend of the United States in this House than I. However, at the same time I believe that the United States should be sharply criticised where it deserves criticism. In passing, perhaps I may say that I have never understood how Canada has the gall to be a member of the Cairns Group; over the years it has had its own farm subsidies and yet happily criticises European subsidies.
A point that is not generally understood is that farm subsidies in the United States are greater on a farm-by-farm basis than they are in the European Union. That surprises a considerable number of people. The farms are bigger, but they receive more money in subsidy than farms throughout Europe. The United States applies massive farm subsidies. Perhaps I may give an example. In the Agricultural Appropriations Bill signed by President Clinton on 22nd October last, a total of over 69 billion dollars was consigned under the farm appropriations programme. That included almost 9 billion dollars for what was described as emergency farm aid. That is on top of 16 billion dollars already paid out in 1999.
I hope that the Government do not allow the Americans all the best arguments. We should be prepared to point out the massive scale of agricultural subsidies in the United States during the period that I have mentioned. I hope that the talks that are beginning to take place in regard to the world trade round will be successful and will carry on the gradual work of bringing the CAP under control. However, I rather suspect that the final words of my noble friend

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Lord Reay are true. He doubted whether that would happen in his lifetime. I doubt that it will happen in my lifetime either.
3.58 p.m.
The Duke of Montrose: My Lords, it is with some trepidation that I rise to speak today, in the midst of so many noble Lords who have spent years looking at the broad perspective of agriculture, and at the CAP and the support that it receives. I have been involved for most of my life in livestock production and spent nine years on the central council of the Scottish NFU, so my perspective may be slightly more constrained. I was interested to read the report and pleased that the issues were so clearly outlined. It sets out the criteria that presumably the UK Government would like to pursue.
It will assist my argument to repeat the criteria which were declared for the CAP and I hope that your Lordships will not mind if I do so. They were similar to those declared at the beginning of the policy in 1962 and I took them from the Agenda 2000 report, which your Lordships will have read. The first aim is to improve competitiveness—which, although it may not be effective, is a stated aim—to achieve lower prices and deal with food safety and qualify. The second aim is a fair standard of living for the agricultural community. The third is to achieve stability for farm incomes. The fourth is the integration of environmental goals. The fifth is to provide alternative income and employment opportunities for farmers. The sixth is to contribute to the economic cohesion of the European Union.
The common agricultural policy has come a long way from its beginning. I obtained from the Library figures issued by the ILO. As regards the earlier criteria, the available figures relate to agriculture, forestry and fishing, but I shall concentrate on agriculture. They show that in, say, France in 1946 7.5 million people were employed in agriculture. The latest figures—those for 1994—show that 1 million people are employed. Your Lordships can see that a massive change has taken place in France's economy. Similar figures relate to Germany, but in the UK the number of people employed in agriculture has decreased from 1.1 million to 0.6 million.
In terms of a percentage of the employed workforce, in France the number has fallen from approximately 40 per cent to 4.7 per cent and in the UK from 6 per cent to 2.1 per cent. The scale change has been similar in both countries, although the French are perhaps a generation behind us in reaching the desired levels of efficiency.
In the EU, the average employment in agriculture is 5.5 per cent. According to the Agenda 2000 report, a fall of 2.3 per cent per annum is envisaged during the next 10 years. That scale of change, from the historical perspective, is equal to that I described earlier.
The rate of social and economic upheaval which the rural economy can withstand should be at the forefront of our thoughts when considering any changes to the CAP. I am not in a position to propose
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the policies which that criterion should engender, but we must pay great attention to it. If the policy as outlined in Agenda 2000 is to achieve such a change, we cannot dismiss the plan for reform even if we wish it to be modified and produce better results.
That is not to say that there is an easy solution to the present crisis. The forecast on which the Government's policy is proposed appears to be, in world terms, an increase in demand and firm agricultural prices. But we must contrast that with the present UK price collapse which will require some genius, as well as much money and effort, to remedy.
I should like to believe that when we go to the WTO meeting, that when the Government consider future policy, at the head of our priorities should be that the change should always be sufficiently graded so that the rural economy and those who gain a livelihood from it have time to adjust.
4.3 p.m.
Lord Willoughby de Broke: My Lords, I thank my noble friend Lord Reay for his chairmanship of our sub-committee. I join him in thanking our specialist adviser, Professor John Marsh, for his lucid exposé of some of the problems which face the CAP.
The report is short, concise and says it all in a few pages. However, like my noble friend Lord Jopling, I am a little depressed. In preparing for the debate, I looked back on 10 years of reports on reform of the CAP. We had reports in 1991, 1994 and 1996. I was a member of the sub-committee which reported in May 1998 and we have the latest report before us today. We have five reports; we have listened to vast numbers of witnesses laboriously interviewed; we have bookshelves of documents and written evidence; and we have thoughtful and well-written conclusions after hours of committee time. But to what end? Here we are, still talking to ourselves. No one else seems to listen to us.
The Government, in their response to the report, state that they are distressed by the lack of progress and that reform is needed now. The previous government and the government before them said the same thing, but I hear no echo of it in Paris, Berlin, Madrid or Athens. I am afraid that all the evidence shows that we are talking to ourselves; no one else listens. Our competitors, or partners according to one's taste, seem determined not to change anything. There may be an environmental tweak or a nod towards an "integrated rural policy"—whatever that may mean—but that is all. The message is loud and clear: reform is not the plat du jour—it is not even on the menu.
What kind of signal does that send to the candidate countries of eastern Europe? When enlargement first appeared on the political agenda, there appeared to be general enthusiasm to see the newly democratic eastern European countries "come home". That was

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the buzz expression. As my noble friend Lord Middleton said in a speech in this House on one of his own reports—he was then chairman of the Select Committee:
"I have mentioned our 1994 report on the trade agreements with the CEEC and our conviction that no enlargement was possible without CAP reform".—[Official Report, 15/10/96; col. 1600.]
In the same debate, he went on to say (at col. 1603):
"If it is envisaged that accession by the CEECs should begin in the year 2000, discussions on detailed CAP reform are needed now".
And so we go on.
However, as our report notes, the enthusiasm for enlargement seems to have evaporated. So-called "reforms" agreed in Berlin earlier this year do nothing to resolve the underlying problems. Meanwhile, the negotiations on enlargement grind on, rather like a lorry sinking into the sand very slowly. Some EU governments are telling us that it will take five, seven and even 10 years before some of the candidate countries are full members of the EU.
As the noble Lord, Lord Tomlinson, pointed out, the unreformed CAP is alive and well, and without reform there can be no enlargement. That seems to be perfectly clear. Most of the economies of the candidate countries are agricultural and the EU cannot afford to pay them the huge IACS payments which it makes to current members. Here, I declare an interest as a farmer and recipient of IACS payments.
So how is the circle to be squared? Are these countries to be offered a different, second-class deal to abide by CAP conditions, but not receive the subsidies—to implement in all their stifling and expensive detail the provisions of the acqui communautaire? And if the candidate countries are to be offered or forced to accept a different deal, because we cannot have enlargement with an unreformed CAP, surely that opens the door to present members of the EU to negotiate a special, separate deal.
If that is the case, we should seize the opportunity seriously to consider repatriating British agricultural policy to this country. We in Britain would then be able to decide how we want our agriculture to be developed and where we want to go with it. We should then have a chance of putting into practice what has for many years been recommended by the committees of your Lordships' House. After all, those recommendations have been endorsed by successive governments. They are the progressive elimination of milk quotas; the progressive reduction of production support payments; area payments to upland or less favoured areas rather than headage payments—they have been economically and environmentally disastrous, as we are now seeing with the low sheep prices; and, over time, a substantial and eventually complete transfer of funds from production support to environmental support.
All those goals are attainable and, if we were to achieve them, the funds are of course available. At present, as your Lordships are well aware, our gross contribution to the EU budget is about £9 billion per
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year. Broadly, about half of the EU budget is spent on the CAP. Therefore we should have about £4½ billion of our money to spend on our own agricultural environment. That amounts to about £85 million per week, which seems to me a fairly tidy sum.
In that way, with one bound Jack would be free. We should escape the iron grip of the CAP. We can reshape our agriculture; our environment would become more WTO compatible; and this Government would be able to enjoy telling our partners in Europe that we no longer require an agriculture-related rebate. That is something very communautaire to be able to tell our partners, if that is what we want to do.
The Minister is smiling, but I ask her to take this matter seriously and to think about it, as we are often enjoined to "think the unthinkable". Will she consider setting up a small MAFF think-tank and, if necessary, shut its members up in a room with an urn of Ministry tea until they come to a conclusion? Thinking the unthinkable is often the way forward. Today's impossibility is often tomorrow's reality.
Lord Williams of Elvel: My Lords, before the noble Lord sits down, can he explain to the House how we should withdraw from the common agricultural policy without withdrawing from the European Union?
Lord Willoughby de Broke: My Lords, I should be delighted to try and explain that, but it would take rather more time than I have in this particular debate. However, as the idea of withdrawing from the common fisheries policy has already been floated, I am sure that the same sort of negotiations would pertain in this case.
4.11 p.m.
The Earl of Selborne: My Lords, I begin, as other noble Lords have done, by declaring an interest as a farmer. I am chairman also of the Agricultural Mortgage Corporation. Like others, I congratulate my noble friend Lord Reay and Sub-Committee D on a clear, succinct and totally convincing report. Like others, I have served on the committee, in 1991 and 1994 and therefore, like others, I share a sense of déjà vu and depression. However, rather than repeat a litany of everything that has gone wrong in the past, it is probably about time to determine where we go from here. I follow the implied criticism from the noble Lord, Lord Williams, that repatriation of the common agricultural policy is not likely to get us anywhere.
Leaving aside the whole concept of how it is compatible with European Union membership, we must determine that agricultural policy in Europe be competitive. That is the problem with the common agricultural policy. It foists us into a high-cost production system which means that when we try to export into third markets, or if we were to reduce tariff barriers for greater access—as the WTO will almost certainly succeed in doing—we find ourselves uncompetitive even in our own home markets.
What is in the United Kingdom's interests? We did all the hard work from 1947 onwards. The Labour administration of the time—who, I must admit, were

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excellent—produced the Agriculture Act which set up agriculture in this country in a way from which it has benefited for a long time. It was based on strong capital reinvestment with capital improvement grants, a strong research and development base and an acknowledgement that we could not carry on having small farms, on which the rest of Europe was prepared to rely; we had to achieve economies of scale. The national plan of George Brown's time followed further the policy of ensuring that the United Kingdom had a policy competitive with other countries in the world.
We were doing well until we joined the common agricultural policy when, as farmers, we could not believe our luck. We found ourselves receiving production support on a scale which certainly was not available under the old deficiency payments. We found ourselves locked—unwisely, as it turned out—into a much higher-cost production system than was perhaps necessary, having done so much hard work to achieve those economies of scale. We now find ourselves, as part of Europe, priced out of markets by America and by other production regions around the world. It is in our long-term interest to address that and to try and return to a system in Europe through which we can be competitive.
Paragraph 10 of the report reminded us that,
"One of the goals of the CAP as set out by the Commission is to make EU agriculture internationally competitive".
That is of course a massive joke. It should be an aim, but everything recommended by the European Union Commission and endorsed at Berlin made that even less likely to be achieved. That is the fundamental issue which needs to be addressed. Sub-Committee D has said before, and I am sure that we shall say again in this report, that until we acknowledge that a common agricultural policy must accept that the WTO, and previously the Uruguay Round, will inevitably require freer trade in agricultural produce, we are simply missing the point. If do not recognise that fact then we are missing the point.
That does not stop us rebalancing the income streams. I agree entirely that we need to try and get funds, be they recycled common agricultural policy funds or funds from elsewhere—I mind not what—for new goods. If we as managers of land can devise environmental goods which can be paid for separately—I agree entirely with my noble friend Lord Reay that they should not be bolted on as a sort of add-on in cross-compliance with the production support—if we can determine new markets for access, new habitats and biodiversity schemes; all highly worthy projects for which we have had a number of excellent pilot schemes, that would be a desirable way of adding a bit of cream—if that is the right word—to what is currently extremely diluted milk.
We need to recognise that the reason the Berlin Summit rejected even the preposterously extravagant plans of the Agriculture Council was that it simply could not face up to the implications of lower world prices—which we see inevitably happening—and the decimation of European agriculture. That is where we, as so often is the case, have a slightly—although not totally—different agenda from the rest of Europe
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because, as I say, we have achieved certain economies of scale, we have invested more heavily than many countries and should have a little more confidence than many of the more marginal areas of Europe.
Therefore we need to address the real issue, which is that no farmer will be able to cope, either in this country, and certainly not in many of the marginal areas on the Continent, with the sort of world prices at which we are looking. If one plans therefore to remove production support, one must recognise that, however imaginative some of the top-up schemes—in respect of environmental benefit, access and so forth—one will still leave the agriculture sector in Europe in grave danger, when world prices go beyond a certain level, of total collapse.
In the first years of an agricultural recession, what tends to happen is that farmers take over the land and production is not lost. One could say that that is good market economy; it is desirable; it is the way in which other industries work and it will work its way through. However, there will come a moment when—even if we do not remember it ourselves we have certainly heard about it in the 1920s and 1930s, and before that, in the 1880s and 1890s—the agricultural economy will totally collapse. That is behind the fears expressed by the Agriculture Council Ministers and by the Berlin Summit.
We must at least recognise that as the basis of those fears. The answer to the problem is the system of deficiency payments which the Americans haw in part adopted and which we adopted from 1947 onwards. My noble friend Lord Jopling was absolutely right to point out the enormous scale of support that the United States Government give to their farmers. I draw particular attention to one or two aspects of that system. First, under the US Government's 1996 farm Act formula, when prices fall 85 per cent below the previous five-year average of farm prices for a range of crops, a deficiency payment is made. In other words, 85 per cent of the five-year average income is effectively guaranteed. That is a system of deficiency payments similar to the one that we had for 20 years or so after the war.
The second aspect, which is a very small component of that enormous figure of 69 billion dollars which my noble friend Lord Jopling mentioned for the farms appropriation programme, is a crop revenue assurance scheme. That is supported or subsidised by federal funds and costs between 2 billion dollars and 3 billion dollars.
Again, it is a sensible concept which provides underpinning. Insurance is underwritten by state funds in order to ensure that revenue on the holding does not fall through collapse of world prices which is beyond the farmer's control or natural disaster or for any other reason. If it falls below a certain level, again, the insurance kicks in.
Those all seem to me to be sensible measures which are clearly likely to be much more compatible with the World Trade Organisation than the production support which we continue to give if only because we

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are being realistic and giving thought to precisely the proposals which are operating in the United States, Canada and elsewhere.
Year after year, this House and Sub-Committee D makes the pronunciation that we must live in the real world and face up to world prices. We must recognise also that it would be irresponsible not to ensure that there is an ultimate long-term solution as to how to cope with the collapse in world prices. The United Kingdom often seems to speak in total isolation. But if those measures were put in place so that there is a long-stop, perhaps we should be listened to more often.
We have a proud experience of deficiency payments because we operated just such a system. Surely it is time for that system to be applied much more widely in Europe.
4.21 p.m.
Lord Williamson of Horton: My Lords, first, I join other noble Lords in congratulating the Select Committee on this report and, in particular, the noble Lord, Lord Reay, chairman of Sub-Committee D which deals with agriculture, fisheries and food—the sub-committee known colloquially as the "poisoned chalice", I understand.
It is valuable to have a first analysis of the agricultural elements of the Agenda 2000 document and, more importantly, to have an analysis of the position taken by the agriculture Ministers and by the heads of state and government in the European Council because that was the decisive element. The Select Committee describes the report as a "brief initial evaluation". I think it is correct to describe it, as they say in the art world, as a finished sketch rather than an oil painting.
There are many points in the report with which I agree and I agree also with some of the comments made by noble Lords, particularly the noble Lord, Lord Jopling, about other parts of the common agricultural policy which do not impinge strictly on British farming. For example, there is no doubt that the tobacco regime is evidently batty. We should do what we can to change that position.
I agree also that the subject of reform of the common agricultural policy was a patient in a coma for many years, despite the efforts of some, like the noble Lord, Lord Jopling, to awaken it out of that coma. But I do not agree that the subject remains completely in a coma now. That is not my impression of the position in a number of other member states.
The common agricultural policy which, perhaps rather irritatingly, might be rather better described as the British agricultural policy—because that is what it is—is not always black or white but sometimes a little grey and I should like to make a number of comments on the grey zone.
First, I recall that the principal purpose of the Commission's communication, Agenda 2000, was to examine the applications for accession and the main questions they raised as well as proposing a timetable for opening the negotiations and giving the
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Commission's formal opinions on those negotiations. It proposed a reinforcement of the pre-accession strategy and a detailed financial analysis, having regard to the prospects for enlargement. If I remember rightly, that document was based on about 10,000 pages of submissions from the applicant countries, together with extensive consultations with them. But I repeat that, fundamentally, it is a document about the applicant countries and the negotiations with them. That is its first purpose.
However, the Commission decided to go further and to deal with other challenges, including the changes in structural policies and in the common agricultural policy. It is important to put the agricultural chapter of Agenda 2000 in that context. It is not presented as a total reform. It is proposed as,
"deepening and extending the 1992 changes through further shifts from price support to direct payments, and developing a coherent rural policy to accompany this process".
So it is seen as a further movement. It is not a revolution. Some people here would like to see a revolution in the way we operate in Europe. It is an evolution, but we should not underestimate the importance of the evolution which the Commission proposed.
Secondly, and more specifically, there is a tendency—although I generally exempt the Select Committee—to underestimate the changes made in the level of market support in the European Union and to describe the CAP as it was. I believe that "things ain't wot they used to be", although the changes have not been as great as Britain would like to see. In the recent period, agricultural policy has been marked by price freezes and price cuts, so that the element of market support has become much smaller. Of course, the main beneficiaries are, and will continue to be, the United Kingdom and other European Union consumers as the floor set by intervention buying falls. Farmers have been compensated by direct grants or, in the case of the most recent decision, partially compensated by such payments.
It is true that governments have adopted policy changes which reduce the earlier disadvantages of the CAP—of course, they do not eliminate them; they reduce them—for consumers by freezing or reducing support prices for some commodities and substituting a less variable but potentially higher cost to the budget because those direct payments are fixed and, therefore, in some circumstances, could be more costly. It is important to talk not only of the budget costs but also to recognise the benefits of what has been achieved so far—little it is, but it is there—for consumers and, I believe, in due course, for agricultural trade.
As support prices are frozen or fall and intervention mechanisms for some products are weakened, we can see the effect on the market. The most obvious effect is the virtual disappearance of the famous food mountains, perhaps described more accurately today as "The Fens". Public intervention stocks of wheat—and this is just after the harvest—amount to about four weeks' supply; for beef, less than a week's supply,

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a few days' supply; and for butter, about a week's supply. That is what we have in stock in the public intervention stores in the Community.
The Select Committee's report is clearly presented. I agree with the committee that, in the event, the Berlin European Council decisions in March represented, "not tightening but further loosening" of the reform proposals of the Commission and of the position taken by the agriculture Ministers.
Nevertheless, I want to say a few words on the two chapters which the Select Committee has put forward on this point, arid to deal with just one product. I am the first to accept that there are evident criticisms of a large number of the market regimes—for example, milk where it is completely static at the moment, tobacco and others. But I want to speak about cereals. There is a slight tendency to put together all the different regimes. The way in which cereals are treated in the agricultural policy is extremely important, not only because, for millions of years, they have been the basic element of human diet and life, which is something which we may recall, but also because they are a raw material for a lot of animal production—I refer to egg and poultry farmers in particular—and are a part of their costs.
Taken with the earlier support price cuts for cereals since 1992, the decision at Berlin represents a cut of about 45 per cent in the support price of wheat. That is a significant change. The proposal of the Commission in Agenda 2000 was a cut of 20 per cent in one move in the year 2000 and elimination of the compulsory set-aside. The purpose of that proposal was to reduce the price broadly to world levels in pursuit of a strategy which,
"could simultaneously avoid the routine use of export subsidies, reinforce the competitiveness of cereals on the single market, overcome the Uruguay Round constraints for oilseeds and, last but not least, bring a good deal of simplification".
Anyone who deals with farming will certainly welcome that. We would be close to switching the common agricultural policy for cereals from a market-supported to a market-based system.
As has been pointed out, the European Council did not go as far, and certainly not as fast, as was proposed. However, in my view the Select Committee goes too far or, more accurately, does not go far enough in stating, in paragraph 3 of page 9 of the report, that the price cuts agreed fall far short of reducing arable prices—I repeat, "arable"—to world levels.
In the excellent evidence of the noble Lord, Lord Donoughue, and Miss Kate Timms, I note that Miss Timms expressed the situation very well. She said that when the new member states come to join the Union,
"they can expect to be joining a policy which has moved quite substantially towards world market price levels".
It is obvious that no wise man would bet on world prices. However, I would be prepared to stake a modest euro or two on the suggestion that when the Berlin decisions are fully in effect, world and European Union support prices for cereals, taking one year with another, will be very close indeed. A number of noble
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Lords have said that they will not be alive then. I am hoping to be alive so that they can cash in their bet if I am wrong on that point!
Perhaps I may say a final word on the degressivity of payments made to farmers in compensation for the price cuts. I agree with the Government and the Select Committee that an element of degressivity would be an important signal of the continuing move not only to a more open market system, but also to a cheaper one. It is a perfectly legitimate objective to have a cheaper one if we can. However, we should understand the consequences of our actions. Obviously, British farmers are under a great deal of pressure today. That is not by chance, but is caused by factors such as the strong pound, the consequences of the BSE crisis and the downward pressure on prices exerted in the common agricultural policy.
Like a number of other noble Lords, I believe that if we continue on this track and achieve an element of degressivity, as I hope we shall, on the direct payments to farmers, we shall gradually, over a period of time, have to think of a safety net for British farmers whose interests I have spent a long time defending and I shall continue so to do.
4.25 p.m.
Earl Peel: My Lords, I, too, thank my noble friend and other members of his sub-committee for producing this report. I congratulate him on three fronts: first, because it is short; secondly, it is readable, and, thirdly, I agree with it. That is a good start.
As the report states, and as I believe all noble Lords who have spoken accept, a fundamental reform of the CAP is essential. No one can underestimate the difficult task facing the Government in trying to reach a consensus when so many different attitudes prevail and so many different agricultural and environmental situations exist. Whether that problem is surmountable remains to be seen. However, share the same scepticism as my noble friend Lord Willoughby de Broke. It will be some time before we see the sort of changes which most of us would want to see.
I am absolutely convinced that the Minister, Nick Brown, is personally committed to substantial reform. I wish him well in his continued negotiations, but I have doubts as to how successful he is likely to be.
It seems to me that the primary objective of any CAP reform should be to try to respond to the changes taking place in the rural revolution we are undergoing in the British countryside. I do not believe that is an over-exaggeration. It will undoubtedly come to other European countryside areas, if it has not started already. My noble friend the Duke of Montrose referred to that point. That means that we must not just address the problems; we must also embrace the opportunities, of which there will be many.
To me, the two most significant criticisms in the report appear in paragraphs 15 and 17. Taking them in reverse order, paragraph 17 states:
"One of the aims of the Agenda 2000 reforms was to make rural development 'the second pillar of the CAP".

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However, the report acknowledges the limited success there has been in this direction. That needs to be addressed urgently.
Paragraph 15 states:
"Historically the CAP has been much more successful in boosting production than in protecting and enhancing the … environment."
That is the truest thing that could possibly be said.
The opportunities for environmental enhancement under Agenda 2000, provided for under the horizontal measures, both of a compulsory and discretionary nature, are real. There are opportunities, although I suspect they are limited. However, as I understand it—I am the first to admit that, on reading the documents, the position is quite complicated—member states have the opportunity of transferring up to 20 per cent of the funds allocated to them through the CAP into measures other than agricultural production support, including agri-environment and rural development. My noble friend Lord Reay touched on that point in opening.
I concur with his remarks and should like to ask questions of the Government, of which I gave notice to the Minister. First, what proportion of UK allocation do the Government intend to transfer into alternative schemes, in other words rural development and agri-environment? Secondly, do the Government intend to provide any matching funding? Thirdly—an important question—can the Minister assure the House that any reduction in funds from the UK CAP allocation will be used exclusively for rural development or agri-environment schemes and not, if I may put it this way, siphoned away?
I raised that question during the debate on the gracious Speech on Monday. Not surprisingly, I did not receive a response, in view of the fact that I was being answered by a Minister responsible for education.
I hope that your Lordships will allow me the luxury of reverting to what I might describe as parochial matters. I should like to make a few comments regarding the Countryside Stewardship Scheme. By and large, this scheme has been most successful. I declare an interest in that I have benefited from such a scheme and am doing so at present on the land I own in North Yorkshire. However, despite the tremendous response from the farming community to the scheme, a large number of farmers have become disappointed and somewhat disillusioned because, unfortunately, Government finances failed to meet demand.
I sincerely hope that the problem can be addressed in the future, for two reasons. First, the countryside desperately needs such schemes. Secondly, when farmers are invited to do more for the environment and respond positively, it is extremely disconcerting for them if they are then rejected. That puts out all the wrong messages.
I should add that the scheme is often costly to prepare and many farmers are substantially out of pocket, particularly if they fail to qualify. In order to attempt to alleviate that situation, perhaps the
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Minister and her department will consider ways in which applicants can produce a lower-grade assessment with less commitment and expense, thus allowing MAFF officers to suggest whether or not their schemes are worthy of progression. That would put a lot more confidence in the scheme and perhaps encourage farmers to come forward. However, if the money is not likely to be available, then I suspect the Government will not make it easy for people to apply.
One other shortfall in the Countryside Stewardship Scheme is its perceived inability to support those farmers who have looked after the land in an environmentally positive fashion. As the scheme stands at the moment they simply do not qualify. That may be because the Minister feels that they have nothing more to offer. But that is an inequitable state of affairs given that they incurred the cost of doing the work to get the land in good heart. I hope that issue will be looked at and possibly addressed in the future.
I welcome in principle the move away from headage payments to area payments within the less favoured areas. That is a long-overdue move. It is a complicated scheme and will require close examination. But can the Minister say whether the scheme is designed to reward those who have done well in the past or, once again, will it be only those who have severely over-grazed the uplands areas who will benefit? I hope that that situation too can be addressed.
In conclusion, my basic concern is that there is not enough urgency in dealing with the future reforms of the CAP. Since its inception there has been a huge decline in biodiversity on our farms though, perversely, the fact that set-aside was retained through failure of reform, is now something I welcome because of the environmental options now available on such land; for example, the wild bird cover option.
We must be aware that 195 of the 514 bird species that breed in Europe are now the cause of conservation concern. I am not talking of rare and exotic species; I am talking of what were once regarded as everyday common birds like skylarks and thrushes, and even sparrows and starlings. Of course, the same applies to flowers and insects. So I stress the need for us all to deal with those problems before they get any worse. The longer we leave them, the more expensive they will be to remedy. We do not as yet have the silent spring foreseen by Rachel Carson 40 years ago, but the springs certainly are not what they used to be. I do not blame the farmers; I blame the system, and that system must change.
Reform of the CAP is as important to the environment as reform of the Corn Laws was to trade. But I am under no illusion. I know that this "Peel" is not likely to have the same effect as that "Peel". However, the Government can do something and I hope they will.
4.42 p.m.
Lord Bruce of Donington: My Lords, I ask the indulgence of the House to use what we normally call the "interval"—not to make a speech on the report itself, although I should like to do so because it is

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extremely important, but to ask two questions. It must be understood that in asking the questions I make no assertions as to the authenticity of the matters that came to my attention.
Through sources that I normally find reliable among the many institutions that participate in the European Union, it came to my notice that negotiations are taking place between Her Majesty's Government on the one hand and the Commission on the other concerning payments that are made from time to time out of the guarantee and other funds to individual farmers and landowners in respect of the areas that they occupy. A large number of payments depend on the measurement of land. My information, which I do not wish to authenticate and I put the question in the most neutral sense of the term—your Lordships are aware that I like to be sure of the facts before I make an observation—is that it is proposed that the method of land measurement in the United Kingdom should no longer be based on Ordnance Survey maps.
Hitherto, Ordnance Survey maps attracted support wherever people made use of them. They are regarded as being an extremely accurate record of the land and the areas occupied. Can the Government say whether the method of using Ordnance Survey maps for determination of land measurement is presently under negotiation? I understand that it may be discarded and substituted by a more detailed form of survey involving visitations and detailed questioning of landowners and land occupiers, which the Commission feels will lead to a more accurate appraisal of land. That will enable the element of remuneration based on the Ordnance Survey to be changed.
I am given to understand that, in future, allowance should be made for hedgerows and ditches in every bit of farmland affected; in other words, unproductive land. The Commission's attitude is that 5 per cent of its expenditure—and therefore ours—should be made on land payments. Noble Lords will recognise that such a detailed examination conducted by or on behalf of the Commission involving personal interviews, detailed measurement and everything else, would be extremely costly.
The second proposal is that in future it would be unnecessary to establish payments clue to the United Kingdom, either via our Government under arrangements or direct from the Commission, but that they should be related to that survey. It is said that they should be dealt with in greater detail by regional development boards in the United Kingdom with direct contact between the regional organisations and Brussels, and the regional boards and the farmers.
Those are the two allegations made to me. If they are true, or contain a substantial element of truth, I trust that noble Lords will realise that it will be the most detailed and costly survey since the original compilation of the Domesday Book.
4.48 p.m.
Baroness Miller of Chilthorne Domer: My Lords, it is noticeable that our debate this afternoon has been marked by much more rigour than some of the debates in your Lordships' Chamber on the countryside and rural issues. I especially welcomed the contributions made by noble Lords whose historical perspective is considerably longer than mine, though I perhaps share the trepidation felt by the noble Duke, the Duke of Montrose, of speaking after them.
I was pleased to be a member of the committee and feel satisfied that the report addressed the issues in a comprehensive way. Certainly we on these Benches felt disappointed with the outcome of the CAP reform. Noble Lords this afternoon have expressed a number of reasons why reform did not happen in the way that we hoped it would. I should like to ask the Minister what this means for the next round of talks, and when will they take place?
However, before we can address those issues, we need to get our own house in order. There seems to me to be a continuing difficulty for people in defining exactly what we view our agricultural industry as fulfilling. Is it fulfilling a food production role? Is it fulfilling a countryside stewardship role? Alternatively, is it, as most noble Lords believe, a combination of the two? We have not finished—and, indeed, government departments have not, in some cases, begun the process—defining what role agriculture is fulfilling in which region nor deciding how the policies and funding will meet those differing roles.
The way that we approach the case of the second pillar—the rural development pillar to which the noble Earl, Lord Peel, referred and which is to be found in paragraphs 15 and 17 of the report—will be particularly significant as regards how much of a success we can begin to make of our own thinking regarding the direction in which reform should go. We must prove the case by starting to support rural development with adequately matched funding. We must take it out of the shadow of agriculture so that what is truly agricultural production can remain competitive on the world stage, uninhibited by the weight of other requirements, such as environmental considerations. That is not to say that it should be divorced from such considerations, but we need to define what we are talking about and in which area. My incoherence may, perhaps, reflect that which we find nationally.
There must be realism. If enlargement is to take place, and if we are to approach the world trade talks in a way that makes quite clear to people the direction in which we are going, we must define our objectives. Where our objectives are to preserve the social and environmental fabric of rural areas and produce high quality, non-intensive food, that will require funding of a different nature. We need to be clear about what elements we expect to remain competitive in on a world stage. This varies from region to region. Even within our own country, it is beginning to be accepted, even by MAFF, that regions with arable production

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and those with livestock production are unlikely to be very competitive on a world stage. The Agriculture Minister has made a number of pronouncements about how certain sections of the agricultural community must find their own niches. We need to ascertain whether there are any home-only markets and consider what role they serve.
As I said, we must start to get our own house in order and make such definitions clear. In that spirit, we must approach "degressivity" so that it achieves what we want. We have heard a number of times in this Chamber that we wish to support small family farms because we feel that they will preserve the social fabric of our rural areas and contribute to rural regeneration. However, some noble Lords referred to the fact that there is great anxiety that, as modulation begins to become accepted, the money saved will not be re-directed into the rural environment but will be taken back by the Treasury for other objectives. Perhaps the Minister could comment on that view?
I believe that we need to set bench-marks of our own to measure reform proposals. I should like to refer for a moment to the reform of the less favoured areas scheme and the hill farming allowance scheme to illustrate what I mean. The objectives were, first, to help preserve the farmed upland environment through sustainable management; and, secondly, to contribute to the social fabric in upland rural communities through support for continued agricultural use. It is good that it is a staged transition. But, in some ways, it would seem to disadvantage small farms—the very ones that I should have thought we would want to keep on upland areas. Indeed, it seems to me to disadvantage them in a number of ways and I believe that this is a matter that MAFF should re-examine.
The new system of payments results in a loss of income over the projected three years of the schemes for all types of farm, except those most extensively stocked. Smaller family-run farms are often stocked at a slightly higher rate so they will lose the most. The current hill livestock compensation allowance only accounts for about one-fifth of all subsidy payments to farmers in hill areas. So it could be said not to be very significant if it reduces a little. But on the smallest, most marginal farms, any reduction may be critical. It is, perhaps, better to reduce less so that those small farms are not suffering any drop in what is already an extremely small income.
As we go through particular reforms, both we and MAFF need to be clear about the nature of the objectives; for example, are they to keep people in farming and in our rural areas? Alternatively, are they designed to make farming more efficient? As regards the time-scale, it is very clear from the report that we should press for reforms well before the year 2006. Does the Minister have any idea of when the Government perceive the earliest opportunity will be in pressing for reforms? Further, how will the Government start to make a good case? In particular, we need to make it clear where rural development begins to offer good value and then go back to our more cynical partners, having proved the case in our
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own rural areas—or begun to do so—of just how effective the second pillar can be. It was interesting to note today that, for the first time ever, newspaper reports stated that people in the UK are spending more on leisure than on food. That may tell us something about the future of our rural areas.
In conclusion, I believe that we very much need to get our own priorities clear before we re-approach our European Union partners. We should also commit ourselves to return early to the negotiating table with some definite answers and successes of our own, so that we can then press for real reform on the grounds of successful experiments.
4.57 p.m.
Baroness Byford: My Lords, I, too, should like to add my sincere thanks to the noble Lord, Lord Reay, who chaired this excellent committee. I should also like to thank members of the committee for their report. It reflects the high quality of Members of this House who serve on such committees and the fact that many of them are actually practising farming and agriculture. That background brings an added value to our debates for which we are doubly grateful. I should also like to pay great tribute, as I am sure the Minister will, to the four members of the committee who are no longer sitting in this House. It is due to the very depth of their knowledge that we now have such a good report before us.
In thanking the noble Lord, Lord Reay, I, too, on reading the report realised the great disappointment felt by members of the committee over the outcome of the reform. They were also worried that it might send the wrong message to farmers. Indeed, the negotiations, together with the whole question of enlargement, the untold costs and the two-tier situation, about which others have spoken, are very real issues.
I should like to speak directly to the report and then, perhaps, digress from it because I believe that it has wider implications. I started by asking myself: when is a subsidy not a subsidy? The comments made by my noble friends around the House today reflect the fact that there is a problem that we have to define. What is classed as a "subsidy" in Europe is certainly not in the United States; and, in Canada, the term is used in a different way. There are some very real issues here that we need to grasp. We need to accept that these issues must be tackled before we can overcome the whole problem.
If the EU reduces the price at which it will put up surplus production—intervene in markets—it is simply reducing the sums on which farmers rely in calculating how much to grow, when to slaughter, whether to purchase quota, and so on. If the EU then introduces payments to compensate individual farmers for the lowering of intervention prices, it can surely be accused of paying a subsidy.

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Paragraph 14 of the report now before the House warns that in the WTO talks,
"'compensation' payments may come under pressure, as they are linked to past and continued production".
Indeed, I have heard that the Cairns Group is likely to pursue this line. Announcements in the press this week have confirmed that.
The WTO negotiations are likely to have several effects. Generally speaking, EU prices are higher than world prices. If the talks increase global competition, the EU will be less and less able to hold its own and intervention stocks—which, we are glad to hear, have decreased over the years—will again begin to rise. This will result in the reappearance of those famous European "mountains and lakes" which, while not noted on any official atlas, have a profound effect on agriculture.
Talks about the WTO talks started earlier this week. Earlier this year, it was generally agreed that Europe would have to reform the CAP beforehand. Indeed, it has tried to do so. Broad targets included the need for, first, agreement on price cuts large enough to trigger growth in the internal market and to ensure competitiveness in the global market; and, secondly, the reorganisation of compensation payments to producers. Early in March, a majority of EU agriculture Ministers agreed watered down CAP reforms. These were then further diluted later in the month—this has been mentioned by noble Lords—at the heads of state meeting. There is considerable feeling and comment that these latest dilutions will prevent the EU gaining anything from the coming WTO talks.
As other noble Lords have said, British farming is in crisis. Never a glamorous part of our national life, it has nevertheless fed our people and maintained the countryside as a national asset. It is suffering currently from the beef ban, but also from intensive and intensifying competition from overseas. It is subject to regulation from seed to slaughter and must now watch from the sidelines as other heads of state, presidents and prime ministers make demands which will further reduce its viability.
In the WTO talks, the US and the Cairns Group want to eliminate export subsidies but find references to food safety, quality and animal welfare unacceptable. The talks involve some 135 countries but will take place largely between blocs. My next point has not yet been mentioned, and I hope that I am in order in so doing. In this country we have high standards of animal welfare. Those noble Lords who put up with my comments on farming issues from this Dispatch Box will be well aware that I have mentioned this matter previously. Those high standards put our farmers at a disadvantage to start with. We expect such high standards of them and then wonder why they cannot compete in the world market.
I have already referred to intensifying competition. I give a practical example of this. Poultry meat is not as popular in the rest of the EU as it is in the UK. Our poultry farmers suffer as a result of imports of chicken from Thailand. This follows agreements, now three
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years old, to open trade in chicken into the EU. In those three years, the Commission has failed to carry out any inspection of the systems of production in Thailand. On "Farming Today" on Tuesday of this week, Peter Bradnock, who is the chairman of the British Poultry Meat Federation, said that the Commission has not even got round to making a preliminary visit. Yet sources who have lived in the Far East make it clear that standards of hygiene and animal welfare there fall far short of our own. I am not trying to make a political point here, but I point out the great difficulty that we, the EU and the WTO, face as regards agreeing on a common base when we have such differing expectations as regards food and animal welfare.
The report which we are debating today is less than complimentary about the outcome of Agenda 2000. It raises many issues. I mention a couple of those issues which are not centred on our own agriculture. If enlargement of the European Community were to become a reality, agricultural prices would have to fall. If they did not, extending our support price regimes would be most expensive. It would also raise prices in the applicant countries which could lead to an increase in production there. By the same token, it would also lead to a fall in consumption because the people who live there would not be able to afford their own food.
The report also points out that the failure at Berlin has made more acute the need to lessen production. Many other noble Lords have mentioned this. The argument for banning artificial growth hormones in meat is weakened in a situation where the US believes that the EU is simply trying to get round its production problems and become protectionist.
This is a good report for which we should thank the noble Lord, Lord Reay, and his committee. Their deliberations were acutely constrained by time. It is a pity that recently I seem to have to comment on almost a daily basis on the lack of time devoted by Her Majesty's Government to agricultural matters. However, that is not the case on this occasion.
The report paints a picture of a failure within the EU to grasp the importance of the reform of the CAP both to the EU and to the rest of the world. It is likely that the WTO talks will become concentrated on issues such as prices and subsidies when many people in the EU and this country would also like the talks to include issues such as food safety, hygiene, food quality and animal welfare, which I have mentioned. Issues concerning the environment, global warming, genetically modified organisms and growth hormones are also likely to be subordinate to other pressures during the talks. However, they are also important issues.
I mention a couple of other issues to which my noble friends have referred. My noble friend Lord Jopling touched a raw nerve when he referred to an increase in higher prices and to costs which are not borne by all countries. What will the Government do as regards that situation? As regards the rebalancing of some schemes, on talking with colleagues in the Cairns Group on animal welfare and environmental issues it

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appeared to me that such issues were not of equal concern to them. Under those circumstances, how can the Government get round the issues which affect us directly but do not affect other countries which will take part in the WTO talks? Following a question raised earlier, can the Minister define more clearly the Government's objectives as regards the money paid to farmers to produce food in the first instance but also as regards other schemes which have been mentioned in a social context? I highlight the matters of young farmers entering the industry, early retirement schemes, and support for processing and marketing, which I understand is an option that the Government have at present.
I have not mentioned other points that my noble friends have raised as they have done so more than competently. However, I refer to the intervention of the noble Lord, Lord Bruce. I had not intended to raise this matter today but I understand that what he mentioned may be occurring. Perhaps I may add my weight to the question. I quite understand if the Minister is unable to answer today.
The first issue is very worrying because, if the Commission put it into action, it will be extremely costly. I do not know that it is necessary. If it is to also include unproductive land which has not formerly been taken separately, that is a second issue. When I heard about the third issue—that there is a possibility that the newly set-up RDAs will be going directly to Brussels rather than through our national government—I found it extremely worrying.
I am sorry if I have strayed from a direct response to the report. The report is self-sufficient in its recommendations and suggestions. However, as far as concerns the forthcoming WTO talks, we have to accept that other countries do not have the same starting point as this country and, therefore, that the problem is a much wider one than the report was able to cover.
Before I sit down, perhaps I may again thank my noble friends on all sides of the House—this is an all party report—for an excellent report. I look forward to the Minister's response.
5.11 p.m.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Baroness Hayman): My Lords, I am happy to begin where the noble Baroness ended by congratulating all the members of the committee, some of whom are no longer Members of the House, for the report. It is another report of great clarity and lucidity. It was introduced in the fashion one has come to expect from the committee chairman. We are all grateful for that in an area where clarity, lucidity and certainty have not always been the hallmarks of policy over the years.
It has been a very interesting debate. I share with the noble Baroness, Lady Miller, some trepidation about joining in with those who have spent many years wrestling with the complexities and difficulties of the common agricultural policy and who know some of its
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vagaries far better than I. I listened to some of the language used in the course of the debate. To describe the mood as "downbeat" would be putting it as optimistically as I can. We heard talk of "coma" and "depression"; some of the language was downright morbid in terms of the way in which people viewed the possibilities for reform.
It is opportune now to reflect on the outcome of the Agenda 2000 negotiations—as did the report—and the final agreement reached on reforming the common agricultural policy. Noble Lords will have seen in the Government's response to the committee's report on 5th July that our own analysis is very much in line with the committee's findings. I welcome the opportunity to be able to report on the progress that we have made in implementing the Agenda 2000 agreement and to try to answer some of the questions raised in the debate. I am afraid that not all the answers will be fully-fledged on some of the specific issues because of the stage we have reached in the consultation process. However, there is some benefit in that. Views were expressed on certain issues, such as modulation, the Rural Development Regulation and cross compliance, which it will be very helpful to incorporate into our thinking as we take these matters forward.
Perhaps I may turn basically to the issues surrounding the agreement. The House will be aware that the Government's long-term policy is to secure a more competitive and sustainable agricultural industry with a stronger market orientation. As the noble Lord, Lord Reay said when introducing the debate, the broad objectives are not a matter of dispute around the Chamber or elsewhere. We intend to pursue that policy within Europe. Britain is within Europe, and it is in Europe to stay. I was very interested in the interchange between the noble Lord, Lord Willoughby de Broke and the noble Earl, Lord Selborne, about the viability of trying to repatriate agricultural policy. I should say to the noble Lord, Lord Willoughby de Broke, that I am always willing to think the unthinkable; I am not sure how much time I am willing to spend working on the unworkable.
Obviously, these are matters of judgment. But the philosophy of trying to secure that more competitive and sustainable agricultural industry with a stronger market orientation lay behind our pressing for a radical reform of the common agricultural policy throughout the Agenda 2000 negotiations.
I have listened to a number of interpretations of that agreement. As I say, most of them were downbeat. I think that perhaps the noble Lord, Lord Williamson of Horton, was the least downbeat in his assessment of where we have got to. We can all agree that the outcome did not go as far as we would have wished but, against that, we have to recognise that the agreement represents a step in moving the common agricultural policy in the right direction. It is perhaps of the evolutionary nature to which the noble Lord. Lord Williamson, referred. It represents a significant shift from price support to direct payments being agreed, giving the possibility of reducing the economic distortions of the CAP. The changes within it will help agriculture to meet the challenges of further

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liberalisation of trade, including our ambitions for European Union enlargement and the upcoming World Trade Organisation round. An integrated European Union rural development policy was created, providing the basis for a welcome shift of emphasis from production support towards environmental and rural economy measures in the future.
Perhaps I may now deal with some of those issues. While we recognise the disappointment expressed by the Committee and by speakers today, the Government are keen to build on what has been achieved and to pave the way for the reform process started in Berlin to be completed. I was interested in the points on "degressivity" which were made by the noble Lord, Lord Williamson of Horton, and other speakers. As to the, point made by the noble Baroness, Lady Miller, we will certainly pursue the opportunities created by anticipated market pressures, the reviews contained within the Agenda 2000 agreement, such as the review of the quota system, and the existing commitment to reform the sugar regime by 2001. Of course, as many noble Lords have said—the noble Lords, Lord Tomlinson, Lord Reay, and others—enlargement of the European Union and the forthcoming World Trade Organisation round will increase these pressures.
The Government are fully committed to enlargement of the Community, and that commitment has not waned. While we agree with the Committee that we should continue to press the case for "degressivity" it would be misleading to say that further reform of the CAP is a pre-requisite to enlargement. While we agree with my noble friend Lord Tomlinson and the noble Lord, Lord Willoughby de Broke, that such reform would facilitate enlargement, the Agenda 2000 agreement provided sufficient funds to finance the common agricultural policy in new member states on the basis that they would not receive direct payments. Instead it was agreed that funds would be more usefully directed towards structural development. Should enlargement proceed on that, basis, there would be a need for transitional arrangements to address possible market imbalances.
The noble Lord, Lord Jopling, and others talked in some detail about the Seattle talks which are about to start, covering a range of trade issues. The scope of the round has not yet been fully decided, but there is already a commitment to negotiate on the further liberalisation of agricultural trade. Some of our trade partners are pressing very hard for Seattle to agree detailed objectives for the outcome of the agricultural negotiations. The Community has made it clear that we are prepared to negotiate seriously on agriculture but the mandate has to have some flexibility. We cannot determine the outcome before the negotiations even get under way. Once they are under way they are likely to concentrate on further commitments to increase access to imports, reduce subsidised exports and reduce domestic support which is linked to production. I should like to assure the noble Lord, Lord Jopling, and others who referred to the American
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subsidy position that we are pressing for better disciplines in the United States' support for their exports, such as their use of generous export credits.
The Government would certainly agree with the committee's view that negotiations will add to the impetus for more reform of the common agricultural policy. We expect other WTO members to press the European Union to go further in making commitments than the existing Agenda 2000 reforms allow. The Agriculture Council has said that the decisions adopted within the framework of Agenda 2000 constitute the central elements of the Union's position for the WTO negotiations, with the European Union's policy being founded on the full Agenda 2000 package. As I have said, this includes reviewing some of the key regimes over the coming years.
Perhaps I could turn now to taking forward the Agenda 2000 agreements. Through the choices available the Government want to help the industry to embark on a new direction for the future of agriculture in this country. In August, in the third of a series of consultation documents on Agenda 2000, my right honourable friend the Minister of Agriculture, set out his vision for the future of agriculture in this country. He invited the views of everyone with an interest in the countryside, such as farming, environmental and consumer interest, on using the options available under Agenda 2000 to achieve a competitive, flexible and diverse industry.
There are, as has been pointed out today, many areas of discretion in the beef, dairy and arable sectors as well as in implementing the Rural Development Regulation. The Government are now considering the very substantial number of written responses to the consultation as well as the reports of the regional consultations that were held up and down the country, which as a Minister who took part in them I can say were extremely valuable. We hope to make an announcement on implementing those options shortly. My right honourable friend the Minister, Nick Brown, is also in discussion with the Treasury about the long-term future support for agriculture in the United Kingdom in the light of the sustained problems that our farmers have been facing, and to which noble Lords have referred today.
Turning to the opportunities presented through the Rural Development Regulation, both for the future of agriculture and for the protection of the environment, which has been spoken about today, the Government share the committee's view that this regulation, the second pillar of the CAP, will remain in the shadows of mainstream agricultural support while the overall Community funding level is so modest. The United Kingdom's allocation within the overall European Union's ceiling is also very disappointing, and we will be pressing the Commission to review allocations and to do so quickly and thoroughly.
However, I do not believe that we should ignore the importance of the Rural Development Regulation in establishing a solid foundation for the long-term reorientation of agricultural support towards encouraging sustainable and enterprising rural

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economies and communities and towards protecting the environment. It does recognise the multi-functional contribution that farmers make to rural areas and provides a range of measures to help them to diversify their businesses as they adapt to changing market conditions. It also recognises the need to encourage enterprise throughout the rural economy, in part at least to enable it to adjust to the decline in agriculture's direct contribution. It provides mechanisms, as the noble Duke, the Duke of Montrose, pointed out, which are needed to allow rural economies and communities to adapt to the consequences of agricultural reform.
We equally share the view of the noble Earl, Lord Selborne, that measures to enhance the environment should be free-standing and properly targeted to achieve sufficient environmental benefits. This is how we operate our agri-environmental schemes, which are achieving real gains for bio-diversity and landscape, as I think a number of other speakers have pointed out.
The noble Earl, Lord Peel, asked specifically whether the countryside stewardship scheme could become more adaptable towards those who have looked after the habitat and not be designed to give funds to those who have not. Both the countryside stewardship scheme and environmentally sensitive area schemes offer some payments to farmers for maintaining traditional farming practices that are environmentally beneficial. However, within countryside stewardship—because it applies throughout England and demand for it inevitably exceeds the available budget—we operate a system of "scoring" applications for the degree of environmental benefit they would provide. This means that preference is often given to restoring or recreating habitat or for proper management of particularly valuable sites, rather than for simply maintaining the status quo. The priority is to ensure that we get the best environmental value for a given level of expenditure. I have taken note of the noble Earl's comments regarding the complexity of the application forms for countryside stewardship and I will ask officials to consider them as they continue to develop the implementation arrangements for that scheme.
Earl Peel: My Lords, the noble Baroness referred to maintaining the status quo, but surely she would accept that those farmers who have maintained their habitat and have done better than the rest would hardly be described as the status quo.
Baroness Hayman: My Lords, I accept the noble Earl's point. I should like to turn now to the hill farm allowance scheme and to the point made by the noble Baroness, Lady Miller, on small farms. We are consulting on our proposals and will reflect on the points that she raised. The issue of modulation has been raised, and specific questions were asked about how and at what levels the Government would seek to implement modulation. We have consulted on the basis of a form of modulation which fell more or less proportionately on all farmers and would be justified
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as a means of redirecting some CAP money to certain measures available under the Rural Development Regulation.
My right honourable friend the Minister of Agriculture hopes to make an announcement on implementing the Agenda 2000 options as soon as possible, so the specific questions raised by the noble Earl about whether we would modulate, at what level and at what level of funding, I am unable to answer today. However, I can assure him that they will be answered in the eventual outcome of rural development. We are currently drawing up a rural development plan for England, with a national framework and eight regional chapters. I know that the noble Lord and the noble Baroness, Lady Miller, have been particularly interested in this area.
Perhaps I might go on to say briefly, because I am conscious of the time, that the noble Lord, Lord Reay, asked about cross-compliance. Of course this is not a new option. We at present apply it already to all livestock subsidies, which can be reduced where significant over-grazing occurs. In the consultation document issued in August we sought views on whether to extend the use of environmental conditions on direct payments and, if so, what conditions should apply and to which schemes. We have also commissioned research into the practical issues associated with the various options. I am afraid that this is another case of "watch this space". Certainly the issues that I think have concerned noble Lords who have spoken today will be addressed in reaching decisions on these areas.
My noble friend Lord Tomlinson raised the issue of a specific appointment in the anti-fraud unit of the Intervention Board. Perhaps I could write to him on the details, but in the meantime I would say to him that the unit is a substantial one. It comprises a staff of 60 in six offices throughout the United Kingdom. I think that reflects the serious approach to CAP fraud and the rigorous application of anti-fraud measures that we want in this country as well as at the European level.
My noble friend Lord Bruce of Donington asked two specific questions. In so doing, he said that he liked to base his contributions on a full knowledge of the facts. I equally like to do so in my responses. If the noble Lord will allow me, I should like to write to him on the specific points and perhaps send a copy to the noble Baroness, Lady Byford, who followed up those areas of inquiry.
I believe that we have had a useful debate. I recognise that those who have been involved in this subject for a long time feel that there is an inevitability about the way in which we are progressing and about the difficulties that abound. However, I hope that the Government's response to the committee's report, and the moves which we are making in consulting on the various areas where there is discretion and room for

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manoeuvre, make people feel slightly less gloomy than some of them did when contributing to the debate today.
Lord Willoughby de Broke: My Lords, before the noble Baroness sits down, will she be kind enough also to place in the Library a copy of the letter to the noble Lord, Lord Bruce, so that we can all have a look at it? I believe that it will be of general interest.
Baroness Hayman: My Lords, I should be delighted to do so.
5.30 p.m.
Lord Reay: My Lords, I am extremely grateful to all who have taken part in the debate. There have been many exceptionally distinguished speeches, all from noble Lords with great experience, either in agriculture or in European affairs or, in several cases, in both. I agreed with a great deal of what I heard and disagreed with very little, so there is little role left for me in winding up. The speeches will stand on their own and undoubtedly will reward careful study.
I believe that my noble friend Lord Willoughby de Broke made perhaps the most controversial proposal. He wished to repatriate the CAP, or, at least, to explore the possibility of doing so I am sceptical. I doubt whether a repatriated CAP could be compatible with a single market in agricultural produce and probably not with our continued membership of the European Union. However, paragraph 22 of our report welcomes those elements in the Berlin deal which allow member states to adjust their policies to suit their own circumstances. We say that it is in those discretionary areas that it may be possible to get the most out of what we see as a disappointing outcome. Therefore, I believe that it might be interesting to examine in the future how far a policy of expanding the scope for national discretion within the CAP could be extended. No doubt the sub-committee on which my noble friend will continue to serve will decide whether or not it wants to conduct such an inquiry.
I am grateful to the noble Baroness for the tone of her winding-up speech, for giving us answers to some of the questions which were put to her and for trying to raise the mood of the House on the subject which we have been debating. She was not in a position to say what decisions the Government have taken over modulation. Obviously, we shall await with interest forthcoming announcements from the Minister of Agriculture.
My noble friend Lord Jopling referred to the fact that my time is now up as chairman of Sub-Committee D. It has been for me a great honour, a great pleasure and an absorbing interest to have had the opportunity to chair the sub-committee through a series of fascinating inquiries. I wish my successor well.
On Question, Motion agreed to.
Lord McIntosh of Haringey: My Lords, before we move to the Statement on local government finance, I should like to take this opportunity, perhaps
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somewhat despairingly, to remind the House that the Companion indicates that discussion on a Statement should be confined to brief comments and questions for clarification. Peers who speak at length do so at the expense of other noble Lords.

Local Government Finance
5.33 p.m.
Baroness Farrington of Ribbleton: My Lords, with the leave of the House, I should like to repeat a Statement made in the other place. The Statement is as follows:
"With permission, Madam Speaker, I should like to make a statement about local authority revenue finance for England for the year 2000–2001.
"Local councils across the country deliver services which strengthen our communities and are vital to our future economic success. As my right honourable friend the Chancellor of the Exchequer explained to the House in his pre-Budget Statement, this Government's reforms are creating a stable economy and sustainable public finances. That means we can invest for the future—combining enterprise and fairness. This Government invest for a purpose, to secure better delivery of services. And we are investing: in nursery education, with an additional 48,000 new nursery places for three year-olds by next March; in schools, with rigorous targets for higher standards in literacy and numeracy, and, by next April, a new grant to local authorities of £140 million over the next three years to enable carers to take a break.
"This action to secure a platform of economic stability and steady growth has enabled this Government to give local government a measure of stability which is widely welcomed. This stability means that local government can focus its efforts on delivering better services.
"At the same time as ensuring local councils receive the funding they need to deliver high quality local services, this Government are modernising the way in which councils are managed to ensure local people get a better deal. We will shortly publish our Local Government Bill, paving the way for people to play a bigger part in shaping their local communities.
"In July 1998 the Comprehensive Spending Review White Paper set out the spending totals for next year, and the details of revenue funding I am announcing today confirm those totals with minor adjustments. The CSR provides local government with the additional resources needed to deliver better services to local people. My right honourable friend the Secretary of State for Education and Employment is announcing today the provision of an additional £64 million for education spending, bringing the total additional revenue provision for education next year to £1.8 billion. He is also announcing that we will reschedule the introduction of increased employer contributions to teachers'

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pensions which will ease the pressure on school budgets next year by a further £90 million. These announcements reflect the top priority which the Government continue to give to ensuring that schools have the funds they need. The CSR gives three years of substantial growth in government funding for local authorities. It was, and remains, the best settlement for local government since the introduction of council tax.
"We have not only provided significant increases in funding. We have also given local authorities the opportunity to undertake sensible forward planning in a way that was not possible in the past. Local authorities can now broadly predict the grant they will get from government, because we do not propose to make changes to the grant distribution formulae over the CSR period.
"Local government has welcomed this greater certainty about future funding levels. I am sure this House will endorse that view.
"Support from government grant and business rates will be £41.76 billion next year, an increase of £2.2 billion or 5.5 per cent. This increase is more than twice the underlying rate of inflation.
"I propose that the revenue support grant should be £19.44 billion, subject to any slight alterations following the consultation I am launching today, and which runs until 6th January 2000. In addition, some £6.92 billion of specific and special grants will be available to councils.
"We will redistribute £15.4 billion of business rates to local authorities next year. I am publishing the basis for that distribution today.
"Honourable Members will be aware that the next revaluation for the purpose of non-domestic rates will take effect from 1st April 2000. I am announcing today the details of the transitional relief scheme to phase in changes to non-domestic rate bills as a result of the revaluation. I am pleased to say that there will be limits on the size of annual increases in rate bills over all five years of the new rating list. In order to give added protection to small businesses, I shall give additional protection to small properties. This will be offset by limits on the amount by which bills can decrease, which will also be more favourable to enterprises operating from smaller properties. Nearly half of all small properties will see their rate bills fall next year and none will see an increase of more than 5 per cent in real terms.
"Revaluation does not mean that more money will be raised from the rates over the next five years. We propose to reduce the national non-domestic rate multiplier 41.6 pence in the pound in 2000–2001, to take account of the increase in rateable value across the country. That compares with 48.9 pence in 1999–2000. The revaluation will ensure that the burden is spread fairly between ratepayers, in line with changes in the property market since the last revaluation.
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"Following this revaluation, the Government will be reviewing the current system. This will not be a fundamental review of the business rate. It will look for ways of improving the approach to valuation in order to increase stability, certainty and simplicity in the system. We will consider changes to the frequency of valuations. Details of the review will be announced in due course.
"Increases in council tax are a matter for individual local authorities to decide. But before they do so, we expect local authorities to look first at how they could be more efficient and effective. They should reflect that, for most councils, we have provided substantial increases in grant. They should exercise restraint. In 1999, many councils clearly did think much harder about what increase was really needed, and what local people would be prepared to pay. The average council tax increase came down from 8.6 per cent to 6.8 per cent, and we did not have to use our capping powers at all last year. We want all councils to think this way in future. We are willing and able to act to prevent excessive council tax increases.
"I have already announced that we shall continue the scheme for limiting the benefit subsidy which central government pay, where council tax increases are above a guideline. The guideline for the 2000–2001 scheme will be the same as last year: a 4.5 per cent increase in council tax or such higher increase as is necessary to give the council an increase in its budget requirement equal to its full cash SSA increase. As indicated last year, the scheme will operate cumulatively. For each authority, we will use its previous year's council tax at guideline as the starting point. I am issuing today full details and an explanatory note about the scheme for 2000–2001.
"As we explained in our July 1998 White Paper on local government, we propose to keep the method of grant distribution stable while we see whether we can devise a system which is more effective in putting money where it is most needed and will do most good. In keeping with that policy, and as I have already explained to the House, I propose to make no new changes this year in the general method of grant distribution.
"Although the method of calculation will not change, some of the actual standard spending assessments (SSAs) to be used next year will change because of the new local government structure in London. There will be two main changes. Some functions, such as maintenance of certain roads, will transfer from London boroughs to the Greater London Authority, and we shall need to make a transfer of SSAs to reflect that. Secondly, the boundaries of the Metropolitan Police District will be reduced to cover the Greater London area only, and the areas of the police authorities of Surrey, Hertfordshire and Essex will increase. Again, SSAs will need to be adjusted.
"We cannot ignore data changes, such as changes in resident population. These changes inevitably mean some authorities do better than others,

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However, the effects of data changes are smaller than the changes which would have resulted from adjustments to the grant distribution formulae. We have also given local authorities as much advance notice of data changes as we can, releasing the figures as they became available.
"I also propose similar arrangements to last year for phasing in grant changes. This means that no authority will receive less central support from government in 2000–2001 than in 1999–2000, and every education authority will receive at least a 1.5 per cent increase in central support. These comparisons will make allowance for the changes connected with the creation of the GLA.
"My department is today writing with details of the settlement to every local authority in England. Copies of that material have been placed in the Vote Office and the Library. In keeping with our promises to modernise government, all the details are available over the Internet.
"This settlement is another step in the Government's modernising agenda. It provides a good grant increase and a stable financial environment. Together with Best Value and our other reforms, these will enable councils to plan and deliver better services for their people. I believe that the settlement will be widely welcomed. I commend it to the House."
My Lords, that concludes the Statement.
5.45 p.m.
Lord Dixon-Smith: My Lords, I am sure that the whole House will join me in thanking the Minister for repeating the Statement made by her colleague in another place. Over the years the two of us have debated in another forum financial statements of this kind. It is a particular pleasure, although a completely unforeseen one, that the two of us should now be facing each other here.
The annual statement is the culmination of what seems to be something equivalent for local authorities to the game of musical chairs that we used to play as children. Of course, this is an adult game of musical chairs, so the number of chairs does not actually reduce. What happens in this game is that if one is fortunate, one finds oneself provided with a cushion or perhaps a slightly bigger chair; or even, if one is very fortunate indeed, an easy chair. But if one is unfortunate, one's seat becomes harder, one may find that the back of one's chair has been removed, or one may find oneself only with a stool or possibly even only with a three-legged stool. That is a not unapt comparison.
I find the Statement itself interesting because it contains so many things. Paragraph 2 refers to additional nursery places for three year-olds by next March. It is perfectly appropriate for the Government to have something to say about that, and indeed to take credit for it, but it has nothing to do with the financial year to which the Statement applies. It actually applies to the current financial year. With regard to paragraph 4, I found myself thinking that I
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was once again reading the Queen's Speech. I found myself wondering exactly what that was doing in this Statement. I suppose that noble Lords generally will have noticed the tendency of this Government to repeat many things very often. I infer that that is so that Members in another place will learn and will actually keep in mind the points that the Government wish them to keep in mind. I infer that they must be relatively slow learners, given the amount of repetition that seems to be required.
As the Statement says, the Comprehensive Spending Review and the stability in the revenue support grant mean that this year's Statement is relatively more straightforward to interpret than others have been in the past. That is all to the good. But that stability locks in gains for the gainers and losses for the losers. So the country areas which lost last year will lose again this year and London boroughs which lost last year will lose again this year. I am sure that the council tax payers in those areas will be immensely grateful that that has happened.
It is perhaps an unnecessary observation to make, but we should just remember that council tax payments average out at 6.8 per cent. The figures are set out in paragraph 14 of the Statement. Councils are given credit for getting down to that figure from 8.6 per cent in the previous year. We need to remind ourselves that that is still around three times the rate of inflation. The Statement last year provided for something rather less than that; namely, a figure in the order of two times the rate of inflation.
However, if one considers that figure in the context of the putative capping regime—which may or may not be called into play, but clearly the threat of it is still there because it was repeated in the Statement—one might say, as a local authority member working out the budget, that since 6.8 per cent was praised last year then it will be praised again this year. The circumstances are similar and therefore a council tax increase of that order would not be unreasonable. We shall therefore continue to see an element of taxation by stealth.
Another point that interested me in this year's Statement derives from the key statistics set out in Annex 1 to the papers attached to the spending Statement. They reveal two salient facts: the first is that the revenue support grant has been reduced while special and specific grants have increased. Revenue support grant has dropped by 2.3 per cent on its total, while special and specific grants have risen by 13.9 per cent. That represents a shift in local authority funding from funds that local authorities can control in their own interests to funds that are specifically and directly controlled by the Government. The changes in those figures therefore represent a loss of independence for local government. I believe that we should regret that.
Secondly, sandwiched between those statistics in the annex is an even more odd figure; namely, the figure for non-domestic rates. In 1999–2000, non-domestic rates were distributed to the order of £13.6 billion. For the year 2000–01, they will be

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distributed at the rate of £15.4 billion. That is a 13.1 per cent increase. I am bound to say that I have some difficulty in squaring that figure with the 5.5 per cent mentioned in the Statement. From that I can only infer that the 5.5 per cent applies specifically to small properties. I believe that it can be read in that context. Perhaps the noble Baroness will confirm that point. If that applies only to small properties, it means that somebody else is getting an even heavier increase. That figure will cause real concern to those involved in industry and commerce.
This is an ordinary Statement. As a result of it, I expect that we shall see some transfer of taxation, or, if I may put it differently, some transfer of the cost of public services from central government to local government. Before the noble Baroness intervenes to say that that was ever the case and that every government have always done it, I should observe that I had understood that this Government were meant to have been elected with higher aspirations to do things differently. However, I regret to say that, two and a half years through this Parliament, we must judge that the Government have the same feet of clay as their predecessors.
5.55 p.m.
Baroness Maddock: My Lords, from these Benches we also thank the Minister for giving us the opportunity to hear the Statement and to comment on the local government settlement. The spin suggests that the local government settlement this year is the best ever and that everything in the garden is rosy. However, it is worth looking underneath that gloss. Almost the opening lines of the Statement remind us of the importance of local councils and their services to the communities they serve, and in particular the economic well-being of those communities.
At the end of the Statement we are told that this is another step in modernising the way in which we deal with local government matters. Yet we are still using the same formula to redistribute grants that the Conservative Party used in its government for many years and which this Government have now used for three years. I ask the Minister whether the Government can urgently examine the possibility of really modernising local government finance either—as we have proposed many times from these Benches—by giving local councils and their communities more financial autonomy, or by looking at the basis on which the standard spending assessments are decided. In particular—other Members of your Lordships' House who have served in local government will know this—can the Government examine that demon, the area cost adjustment. Local councils and communities have changed beyond recognition since these formulas were put in place.
What is particularly disappointing is that the central-local partnership appears not to have helped as much as some of us would have liked in the short term. Can the Minister confirm that while local authorities, through their local government associations, have estimated
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that they need £3.2 billion additional revenue to meet inflation and spending pressures for 1999–2000, and that the spending needs for 2000–01 will be similar, the Government have assessed that an increase of just over £2 billion is needed? That represents a £1 billion difference. Can the Minister comment on the usefulness of the central-local partnership if there is such a wide disparity between the estimates? I understood that the central-local partnership was provided as a method for agreeing new and extra pressures on councils, in particular rising numbers of children in schools and rising demand for social services.
I should like to press the Minister on other central control matters. What will be the cut in council tax benefit for local authorities next year? Can the Minister confirm that council tax benefit limitation this year has cost local authorities something of the order of £30 million? In addition, can the Minister confirm that council tax benefit limitation has a disproportionate effect on more deprived areas because of the higher concentration of benefit claimants in such areas? Can the Minister tell us how she thinks that assists the Government's social inclusion policy?
Shifting the burden of tax from central government to local council tax payers has continued in this Statement. Can the Minister confirm that the high gearing means that the amount raised directly from council tax payers by local authorities is disproportionate and does not help us to view local government finance in a transparent way? On a slightly different point, but still pursuing the theme of the local-national financial split, can the Minister tell us what is the cost to local authorities of the inspections they are now required to have of their services? In raising the point, I do not want to indicate that we should not have high standards and carry out inspections. I merely point out that these matters are important but do not come without a cost.
I now turn to consultation. Will the Minister tell the House exactly where local authorities stand as regards the ability of councils to discuss their budgets directly with Ministers? Is it still the case that the Minister for Local Government does not propose to meet individual local authorities this year to discuss their budgets? For example, it would appear that performance related pay for teachers will not be fully funded. Rural areas are particularly discriminated against in some local government settlements. These are legitimate matters that can be brought to the attention of Ministers through meetings with individuals. That may be time-consuming, but, if local democracy is to mean anything, it is essential.
I have not covered everything. I know that my noble friend Lady Harris would like to press the Minister on the matter of police funding. I hope that the Minister will be able to answer some of the questions that I have put to her.
Lord Filkin: My Lords—
6.1 p.m.
Baroness Farrington of Ribbleton: My Lords, my noble friend is a new Member of the House. The procedure is that I reply to the points raised by the Opposition Front Bench and the Liberal Democrat Front Bench. Then we move to the next stage.
For me, too, it is a surprise and pleasure to face the noble Lord, Lord Dixon-Smith, across the Dispatch Box. With the change of government and change of role, it is sometimes slightly confusing as to which of us has become a poacher and which of us has become a gamekeeper. Our combined recollections of the period under the previous administration are that it was more like musical chairs. We have worked, planned, and given due warning of our proposals. In those days, it felt rather more as though the chairs were being pulled away as one was about to sit down on them.
The noble Lord raised a series of questions in regard to proposals for the coming financial year. His point regarding authorities with low grant increases is covered by two factors. In some authorities there are adverse changes in data to do with population changes and because some authorities are still suffering the dampened effect of changes in SSA methodology in previous years. For example, for some education authorities pupil numbers, income support and jobseeker's allowance payments are the main relevant data changes, and in some cases the relevant changes concern population and traffic flow. Different factors may affect different areas. For the shire districts, population, rent allowance payments and housing benefit claims can affect the position of individual authorities.
We have made absolutely clear that we believe it is important to see this settlement as an extremely good one for local government. There is nothing hidden in our spending plans. We have provided a substantial increase in government grant: up 5.5 per cent compared to the current year. It is right that local taxpayers and central government should each pay a fair proportion of extra local spending; so local taxpayers can be expected to be asked for more council tax. That partly answers a query raised by the noble Baroness, Lady Maddock.
The noble Baroness raised the question of the limitation on housing benefit and the effect on poorer areas. I remind the noble Baroness—
Baroness Maddock: My Lords, I am grateful to the Minister for giving way. My reference was not specifically to housing benefit, but to the limitation on council tax benefit.
Baroness Farrington of Ribbleton: My Lords, the noble Baroness is right. As regards the council tax benefit limitation, we listened carefully in our consultation with the Local Government Association and the Association for London Government. No authority has its benefit limited by greater than the average, so those authorities that have the greatest concentrations are affected only to the extent of the average.
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The noble Baroness also raised the issue of high gearing. There is a point at which the issue of gearing is linked to local choice. Those of us with long memories of local government can remember the point at which governments of both persuasions realised that to continue to pay an equivalent amount of grant however much the local authority chose to pay, was rather like setting open budgets for local authority public sector higher education. It was recognised that they could not go on using the national taxpayer in an open-ended way. The proposals before us make adequate allowance for the role of local choice.
The noble Baroness, Lady Maddock, also referred to the importance of recognising inspection costs. Perhaps I may give one example from the many areas that have been considered. The Government are meeting their commitment in full for the extra £50 million needed for audit and inspection as part of the Best Value project, with £40 million calculated to be the first year costs and additional funding the following year to take account of that.
I was asked by the noble Lord, Lord Dixon-Smith, about recognition of the implications for nursery education. I felt that the noble Lord was critical of its inclusion in the Statement. We are continuing the direct nursery education grant next year, rather than putting it all through SSA from 2000–2001. We should like to continue, in partnership, to develop a full mutual understanding of the different factors that need to be taken into account. We believe it is useful to await the findings of some of the reviews that are taking place in that area.
A sum of £390 million over three years, beginning in April 1999, is available for three year-olds; 57 LEAs with the greatest social need have received £40 million to create £48,000 new free places by March 2000. This is the first time that central government have made money available specifically to cover that issue. A further £350 million will be made available between April 2000 and March 2002 to provide a total of 190,000 places; 66 per cent of all three year-olds will have access.
The noble Lord raised the issue of increasing specific grants at the expense of the block grant. That is a sterile argument. We should focus on the overall increase in grant, which is 5.5 per cent. The increase of 3.7 per cent over £1.2 billion in block grant is one and half times the rate of inflation.
I also point out particularly to Members of your Lordships' House that there is a great deal of interest in and scrutiny of the Government's achievement of policy objectives. I give as an example the need to include funding in a separate crime reduction programme that will, among other things, be used to recruit 5,000 police officers over and above the numbers that forces would have recruited over the next three years. Without a specific grant this kind of money could not be targeted in the way many noble Lords have sought in the past. As noble Lords have a particular interest in the subject of tackling crime in rural areas, I stress that that money is available to police authorities in all areas including rural areas.

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The noble Baroness, Lady Maddock, sounded faintly grudging. She complained that not all was rosy in the garden. We are a realistic Government and believe that it is important to provide stability. We also believe that where increases are made available to improve services they should be built into the system. I am sure that the noble Baroness would not wish to return to the days when this year there was an extra £25 million for one particular scheme and next year it was removed and the money was provided for something else. We believe in building in a logical way in partnership with local government.
I was asked about unfairness being locked into the system of SSAs. We are clear that the current system cannot go on as it is, and local authorities share that view. An opinion survey has made clear that the majority of authorities are unhappy with the current system. In partnership with local government we are looking at the issue. We shall continue to study ways to review grant distribution. We have made clear that we want to consult widely, which we are doing, and shall not reach any conclusions until next summer. We have also made clear that decisions will not be taken until there has been full consultation. Ministers do not yet have firm views on what changes, if any, should take place. We welcome suggestions from all with an interest before any change is considered.
The CSR took account of all the pressures. In reply to the noble Baroness, Lady Maddock, we took account of the pressures which were discussed with the local authority representatives in the new partnership arrangement. There has never been a time when central government have been able to meet in full all the aspirations of local government and fully reflect them in grant distribution.
The noble Lord, Lord Dixon-Smith, said he was concerned about the shift in taxation from central to local government. The previous government clearly planned that that should happen. Under this Government plans provide for local taxpayers to make a fair contribution to the cost of local services. Ultimately, tax increases are for individual authorities. I conclude by reminding the noble Lord that for local government it is a very welcome situation to know what the position will be over a three-year period and that no local authority will receive less grant than before.
Lord Dixon-Smith: My Lords, before the noble Baroness sits down perhaps she will deal with my question relating to the very great increase in the national non-domestic rate.
Baroness Farrington of Ribbleton: My Lords, 5 per cent is the cap set on increases in bills for smaller properties. The cap for larger properties will be higher. The increase in the distributable amount from £13.6 billion to £15.4 billion is not surprising in the first year of the new rating period. Among other things, an adjustment must be made to allow for anticipated losses on appeal. The amount of rates paid nationally over the five-year period is expected to
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remain broadly the same in real terms as in the 1999/2000 year. It is a complex area, and if I have failed to answer the noble Lord's question fully I shall write to him.
6.15 p.m.
Lord Filkin: My Lords, this is incontestably a good settlement for local government despite vigorous attempts to find minor faults with it. But in practice I do not believe that that is the true significance of the Statement. The true significance is that it is not news at all. Most local authorities have been well aware since July 1998 of the amount of grant that they will get for next year as a result of the decision taken by the Government to fix and forecast the amount of grant for the next three years and to state that they will not change the distribution formula. That may sound technical but it is of great importance to local authorities and local politicians.
For years we argued with the Treasury that we should get away from annuality whereby we had to wait until about December before we knew what we would get. That led to frequent budget crises of which many noble Lords are aware from previous experience. As a result of that change, local authorities knew what their budgets and grant would be and so could avoid those crises and set clearer medium-term strategies. That has been a direct consequence of the success of the Government's economic policy. Because the Treasury no longer needs to fiddle with short-term economic management the Government have been able to make this kind of statement to local government with some certainty. As a result, good local authorities have the opportunity to deliver greater benefits from the resources at their disposal. Knowing the budgets that they will have, they have been able to squeeze them to deliver more value to the public. I believe that that is of benefit to local government generally.
Baroness Harris of Richmond: My Lords, perhaps at this stage I may—
Baroness Farrington of Ribbleton: My Lords, I thank my noble friend whose great experience in the field of local government will be of benefit to the House in discussing local government matters.
Lord Simon of Glaisdale: My Lords, did not the Layfield Committee review the manifest advantages and attractions of a phased-in local income tax as part of a source of local authority finance, and did it not finally reject it on the ground of administrative difficulties? Have not those difficulties been virtually met by modern technology; and, if so, should not the matter be reviewed in the light of those advances? I would have apologised more abjectly for not giving the noble Baroness notice were it not for her famous knowledge of all aspects of local government.
Baroness Farrington of Ribbleton: My Lords, the noble and learned Lord puts me on a pedestal from which I can be knocked with swiftness and ease by

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many Members of your Lordships' House. He is correct in his recollection of the recommendations of the Layfield Committee. However., my recollection, which may not be as accurate or detailed as his, is that local income tax faced problems arising from the fact that many of our communities, unlike those in countries such as the United States, live in areas that are bordered by a number of different local authorities. Therefore, it is perfectly possible for people to live in one area, to send their children to schools in two other areas and to work in and use the services of a fourth. There are many arguments. I believe that I am on very firm ground in saying that the Government have no plans to introduce local income tax.
Baroness Harris of Richmond: My Lords, first, I apologise to the House for not observing the conventions. I hope that my intervention will be overlooked due to my "newness". I offer my apologies.
The announcement will be perplexing for police authorities. We have already indicated that we need £100 million more to run the Police Service than we received last year. That is just to stand still. We have inescapable increases in police pension contributions to which I alluded briefly yesterday. Indeed, in my force in North Yorkshire we know that next year we shall have a shortfall of £5 million. That is partly because of our pension payments. It will be £7 million the following year.
The settlement today gives me no confidence that it will improve matters one jot either locally or nationally. Even the offer of 5,000 more police officers over three years—it equates in North Yorkshire to 51 officers—does not help us when the normal budget for policing continues to go down.
How will the police authorities pay for those parts of essential policing expense which are directly outside our control but which we are still obliged to fund? I speak of the public safety radio communications service (PSRCS) and the national service authority's budget, as well as the awful spectre of the pensions problem. Inflationary pay and pension-related costs alone will eat up all the new money provided by the Government next year.
Baroness Farrington of Ribbleton: My Lords, I am sure that the noble Baroness will be forgiven by the House, not least because she brings o the House very relevant knowledge of the issues facing police authorities at present.
The noble Baroness is right. Over the three-year period there will be an increase of 3 per cent. And there is an increase in real terms in the police authority budgets. I am sure that the increase of 3 per cent over 1999–2000 will be welcomed by those police authorities.
The noble Baroness referred to the importance of new technology. In addition to that money, £400 million is being made available, including £150 million for CCTV schemes and £50 million to protect homes most at risk of burglary.
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The noble Baroness graciously recognised the additional money for police recruitment. There will be £35 million additional funding in the challenge fund for 2000–2001; and all forces can put in a bid for that.
The noble Baroness raised the issue of the new national radio communications system. I am pleased to inform her that the £50 million extra investment in that system is genuinely new money.

Fraud: ECC Report
6.22 p.m.
Lord Hope of Craigheadrose to move, That this House takes note of the Report of the European Communities Committee on Prosecuting Fraud on the Communities' Finances—the Corpus Juris (9th Report, Session 1998–99, HL Paper 62).
The noble and learned Lord said: My Lords, at the heart of this evening's debate there lie two problems—and it may be difficult to decide which is the more troublesome.
It is beyond question that far too much of the Community's budget is being lost to it through fraud. That is the first problem. As we say in the opening sentence of our report, no one doubts the need to take action to protect the assets of the European Union against fraud, corruption and waste. But corruption and waste within the institutions of the Community is one thing. It can, for the most part, be dealt with by means of internal financial controls and other similar self-regulating measures. Fraud on the Community's budget is quite another. It crosses national boundaries. It extends far and wide throughout the member states, and beyond. It attacks and undermines the budget from both sides. It affects both income and expenditure. Crimes are being committed on a large scale. Not to put too fine a point on it, the Community's resources are leaking out in favour of the criminal. The budget is being depleted to the prejudice of all right thinking people throughout the EU.
The second problem is, in part, a product of the first. Everyone agrees that these crimes must be investigated, and that when the evidence has been gathered the offender must be prosecuted. But views differ as to the strategy which we should employ. As I have said, the fraud which needs to be combated crosses national boundaries. Indeed, it tends to exploit them. The involvement of several member states increases the prospect of delay and confusion, and it frustrates the criminal justice process. Some see the best way forward as being to improve measures of cooperation between member states. They believe that at the end of the day it must be for the prosecuting authorities of the member state with jurisdiction over the offender to bring him to justice. The Minister will correct me if I am wrong, but I believe that that is the position which the United Kingdom wishes to adopt. But there are others who wish to bring about a fundamental change in the way in which law and justice are administered throughout the Community.

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For them co-operation is not the answer. They see harmonisation of laws and procedures—the creation of a single judicial area—as the most effective means of breaking down the obstacles created by national boundaries. It is worth noting that in this context the word "judicial" includes the functions of the investigating and prosecuting authorities as well as those of what we in this country mean when we refer to the "judiciary".
The movement which favours harmonisation appears from time to time in different forms. For the purposes of this debate it is to be found in the publication in April 1997 by a group of eight academic lawyers of a research paper entitled Corpus Juris. This paper, which was prepared at the request of the European Parliament, has been designed specifically to deal with the problem of fraud. Although this is a research report, not a formal proposal by the Commission, it seemed to the committee to raise issues of sufficient importance to merit the carrying out of a detailed examination by my sub-committee, Sub-Committee E. It is the report which was prepared following that examination and placed before the House last May which is before your Lordships for debate this evening.
I think that I can best assist your Lordships in three ways. First, I propose to say a little more about the nature and scale of the first problem—the problem of fraud. Next, I shall draw attention, in outline, to the main proposals in the Corpus Juris. Then I must mention a number of developments since the report left the committee's hands which are relevant to this debate.
First, how big is the problem of fraud, and what are its forms? As we explain in the report, fraud on the Community's finances may take many forms, such is the nature of man's ingenuity. But it can be divided up conveniently into income or receipts fraud and expenditure fraud. On the income or receipts side it consists typically of the making of deliberate mis-statements aimed at minimising customs duty or maximising refunds; the smuggling of cigarettes and alcohol; failure to register for VAT; bogus registration; fraudulent inflation of deductible input tax; or suppression of sales to reduce the true tax liability. On the expenditure side it may consist of claiming agricultural aid on the basis of a series of fictitious transactions or simply of embezzlement. The important point to notice is that much of this activity is the product of organised crime. A large proportion of it is trans-national and much of it is on a very large scale. According to official figures, about 1.4 per cent of the budget is lost to fraud. But the real figure may well be much higher than that. The figure of around 10 per cent was mentioned in evidence as having being placed on this by criminologists; and that is about 85 billion euros when measured against the 1999 budget.
Action has, of course, been taken by the Community. As background to our study of the Corpus Juris project, we took steps to inform ourselves about the various measures which are in place. The product of that part of our study is set out in
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paragraphs 10 to 19 of the report. We thought it right to draw attention to the way in which the problem is already being tackled by Community institutions whose function is to detect and combat fraud within the Commission and in the member states, and by instruments which seek to promote co-ordination and co-operation between the investigating and prosecuting authorities. We believe that the Corpus Juris project should be examined in the overall context.
I turn now to the Corpus Juris—a rather grand name, to those familiar with the Corpus Juris Civilis, the Emperor Justinian's great codification of Roman law in the 6th century. What we are dealing with in the report is by comparison quite a modest document. You will find it printed at pages 36 to 44 of the report. It consists of two parts. The first part, which is headed "Criminal Law", sets out a uniform code of offences, to which are attached provisions dealing with a variety of related issues such as mens rea, penalties, concurrent offences and aggravating circumstances.
The second part, which is headed "Criminal Procedure", sets out a scheme which would confer powers of investigation and prosecution within each member state upon a new European public prosecutor. It would create a uniform set of rules of evidence and procedure which each member state would be required to adopt for prosecutions brought in his name.
It must be stressed that the authors of this document would demur to the suggestion that it is designed to create a uniform code of European procedure. They would point out that it is limited in its application to a particular group of offences, and decisions as to guilt or innocence and a wide variety of other matters are left in the hands of the national courts. But one does not have to dip very far into this document in order to discover difficulties. Almost all the evidence which we received was critical of it, and the two members of the committee which drafted it, and who gave evidence before us, acknowledged that much more work needed to be done, following an assessment of reactions, before it could be taken further to the stage of a proposal. There is no time for me to go into detail. But I should like to mention one or two points.
The fundamental objection to the scheme is that it is in conflict with the legal traditions of each of the three jurisdictions within the United Kingdom and, we believe, of other member states. The offence of fraud as we know it in this country is based on conscious dishonesty. Under the proposal, it would be enlarged, for the purposes of Community fraud, to encompass acts of negligence and recklessness. Where a single act creates concurrent offences, against both national law and the Corpus Juris, it would not be open to our prosecuting authorities to prosecute the offence against national law however desirable that might be.
Much of the detail of the procedure is difficult to reconcile with our own procedure. The conduct of the entire process of investigation and prosecution would be in the hands of the European public prosecutor, who would not be answerable to any of the national parliaments. The rights of the defence would be

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weakened in comparison with those which we insist upon in our own courts. Those charged with offences could be remanded in custody for long periods, up to six months renewable for three months, on reasonable suspicion but without charge. Trial would be before a judge, specialising in economic and financial affairs, without a jury. The range of penalties bears little relationship to those which would be available to the sentencing judge in our own courts. And the legal basis in the treaty for such a scheme is, at best, doubtful.
Despite all these shortcomings, it is clear that the Corpus Juris project is not going to go away. It is a well-intentioned response to a real and pressing problem. The European Parliament has welcomed it. Indeed, it has said that it sees it as an example for future developments. The question of its compatibility with national laws has been under consideration by a group of experts for the Commission; the Comité de suivi. I understand that its report is now with the Commission, and that a revised version of the Corpus Juris has been prepared. It may be that the noble Lord the Minister will be able to confirm my understanding and perhaps say when these documents are likely to be published. As we state in the report, it is important that these documents should be in the public domain.
Furthermore, the underlying problem of fraud on the budget is still with us and everyone is agreed that further action to combat it is necessary. The "Committee of Wise Men", appointed by the European Parliament earlier this year, made a number of proposals which included the appointment of a European public prosecutor. So much will depend on the success or otherwise of the measures of co-operation on which the alternative approach to the problem relies.
At the end of our report we sound a note of warning. It is simply this. If the steps taken to improve assistance and co-operation do not produce effective results in the near future, serious consideration will have to be given to the setting up of a special regime for dealing with fraud on the Community's finances and possibly other forms of fraud within the EU. What that regime might be was not for us to explore. But we hope that something useful has been achieved by drawing attention to the many concerns and objections to the Corpus Juris scheme which were expressed by our witnesses.
Lastly, I must mention two points to bring the report up to date. First, as many of your Lordships know, a newly-established European Anti-Fraud Office (OLAF) has been established to replace UCLAF. Doubts have been expressed about its independence from the Commission—about which I say nothing—but there are other difficulties. Its director has not yet been appointed. Until that appointment has been made, steps cannot be taken to draw up a work programme. Nor can plans be made for the recruitment and training of new staff. So this new body has some way to go before its utility can be demonstrated.
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Secondly, I must mention the Special European Council meeting held last October at Tampere. The Corpus Juris was not discussed, but I believe that useful progress was made with a view to better co-operation and convergence between the legal systems of the member states. It was concluded that the principle of mutual recognition, which was put forward by the United Kingdom, should be the corner-stone of co-operation in both civil and criminal matters in the EU. This is a process to which we in the UK, with our legal traditions, are particularly well-placed to contribute, against the background of the co-operation which exists at all levels between three legal systems in our own country.
The signs are that the strategy which favours mutual recognition and co-operation is, for the time being, winning the argument. The committee in its report indicates that this is the more realistic approach. Harmonisation, even on Corpus Juris lines, is likely to be a highly contentious and very time-consuming process. The fact is that the problem of fraud is already too great and too pressing for it to be sensible to proceed along these lines. Time is not on our side. I hope that the report will have performed a useful service by drawing attention to the substantial difficulties which harmonisation along those lines would cause and in supporting the case for mutual co-operation which is being made by Her Majesty's Government. The Motion is that your Lordships should take note of the report. I commend it to the House.
Moved, That this House takes note of the Report of the European Communities Committee on Prosecuting Fraud on the Communities' Finances the Corpus Juris (9th Report, Session 1998–99, HL Paper 62)—(Lord Hope of Craighead.)
6.39 p.m.
Baroness Goudie: My Lords, as a member of the sub-committee, which was skilfully chaired by the noble and learned Lord, Lord Hope of Craighead, I should like to make one or two comments on the report. No one doubts the need to take action to combat fraud in the European Union's finances. The national laws and procedures of member states are not proving sufficiently effective. More and better practical co-operation is required. There is a real and serious problem which Corpus Juris seeks to address constructively, but it does not in itself represent a feasible way ahead. Its shortcomings are more significant than its potential benefits. Above all, the proposals in relation to criminal procedures are fundamentally flawed. The two which are of the gravest concern are the denial of jury trial in such cases and the creation of a European public prosecutor, the EPP, with enormous coercive powers.
It is a major defect that the EPP would not be accountable to any parliament, minister or judge and, indeed, would barely be accountable to anyone. When I probed that aspect during the taking of evidence before the sub-committee, we were told that what is envisaged is not political responsibility but merely disciplinary rules. That is simply not good enough.

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The case for the creation of a supra-national system at that juncture has not been made out. Huge practical problems surround the relationship between the EPP and the national prosecutor specifically, and the co-existence of the legal regimes generally.
Those are not problems which will be overcome by limiting the scope of Corpus Juris. We must continue to press other options for reform. Those include further simplification of extradition procedures, fast-track mutual assistance, and jurisdictional and evidential changes. The best way forward is increased and improved co-operation at a practical level, which has worked well on the whole in relation to England and Wales, Scotland and Northern Ireland, and I believe, increasingly, in the Republic of Ireland.
The European Convention on Human Rights is already in force in much of the United Kingdom. It will within less than a year be in force throughout the United Kingdom. It is doubtful whether Corpus Juris in certain respects meets the minimum requirements of the convention. Corpus Juris fails in terms of both principle and practicality. The Government are right to regard the creation of a single uniform jurisdiction as not being a realistic way forward, and in pressing instead for streamlined co-operation between jurisdictions in fighting against cross-border fraud and corruption, not only in relation to EU funds, but also more generally.
6.43 p.m.
Lord Wigoder: My Lords, as a member of the sub-committee I too pay my tribute to the noble and learned Lord, Lord Hope of Craighead, for the fascinating combination of charm and efficiency with which he conducted our proceedings so helpfully to us all.
Noble Lords will have read the report and have certainly listened today to a clear exposition of its principal features. It is quite unnecessary for me to repeat what the noble and learned Lord has said about this rather tentative and incomplete study called the Corpus Juris by a group of a number of distinguished academics. Out of that proposal there have emerged three serious misconceptions which I believe were in danger of fouling up the whole discussion on the future of the issue. It might perhaps be of assistance to your Lordships if I made a brief comment about each of the three.
The first misconception is that the Corpus Juris is a study that has some official status and that it has in some way or another been adopted by the Commission. That is simply not true. Paragraph 20 of our report states:
"It is not a formal proposal of the Commission. It has the status of a research report or study".
Paragraph 23 states:
"The Commission has taken no view on the proposal and given no commitment to pursue and adopt it".
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The noble and learned Lord mentioned the Tampere European Council meeting which took place recently. Your Lordships may be aware of the comments made by Mr Charles Clarke on behalf of the Home Office in the other place a few weeks ago:
"'Corpus Juris' was not a topic for discussion at the Tampere European Council, nor did the European Council endorse any of the specific proposals in 'Corpus Juris'…There was a brief discussion on whether to examine one Corpus Juris proposal. the idea of creating a European Public Prosecutor, concerned only with protecting the financial interests of the Community, but this was not pursued".—[Official Report, Commons, 5/11/99; col. 370.]
Those statements in our report and by the Home Office make it clear that the proposal, when it first emerged, was greeted with a somewhat hysterical reaction by observers in this country. I refer, for example, to the Daily Telegraph on 30th November 1998, which in large black type carried the headline:
"Alarm over Euro-wide justice plan".
A small paragraph on the front page referred to articles inside:
"Rewriting Magna Carter: Page 4
Editorial: Page 21
Boris Johnson: Page 34".
The main article referred to the,
"Proposals for a common judicial area",
which were in their early stages, but,
"could shortly be adopted for European Union fraud cases and might form the basis for a unified criminal justice system in the future … The plan, drawn up under the aegis of the European Commission, has alarmed the Government",
and so forth. Indeed, some months later the same newspaper stated on 1st June 1999—although I am unable to find any support for the assertion—that,
"Last month, the European Parliament voted in favour of the idea being pursued".
If we could get the status of this fascinating study right, it might help in the rational discussion of it.
The second gross misconception is that the activities which the Corpus Juris has been devised to defeat can be in some way used as a stick with which to beat the Commission. The fraud being investigated by the sub-committee and by the body which produced the Corpus Juris has no sort of relationship with the misuse of Community funds, which has quite rightly had so much publicity recently from the reports of the Court of Auditors and the Committee of Independent Experts. The report and the Corpus Juris deal with matters which had nothing at all to do with those issues.
We and they were both concerned with the activities of common criminals, whether individuals or corporate bodies, who were pursuing financial fraud against the Community on a cross-frontier basis where the differences in jurisdiction between the countries concerned was liable to cause confusion, delay and incompetence in bringing those common criminals to justice. As your Lordships have heard, the result is that some billions of pounds appear to have been lost through offences such as smuggling. They have been lost at the expense of both the member states and the

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Commission. The Corpus Juris which the academics produced was a brave attempt to deal with an extremely difficult problem.
The third misconception is perhaps the most serious. It is that the Corpus Juris proposals by the academics, if adopted, would lead to a change throughout the national legal systems of the countries in the European Union. For example, in August 1997, the Daily Mail referred to it as a plot by Brussels to dictate crime policy to the British Parliament; that it would be the end of habeas corpus. That is a suggestion which our committee, when it investigated it, concluded was quite unfounded.
In the issue of 30th November, to which I have referred, the Daily Telegraph referred also to the habeas corpus allegation and added that it would replace our procedure by a Napoleonic code and that it would lead to the rewriting of Magna Carta.
Professor Spencer, who was one of the most distinguished of the academicians concerned, offered to write an article for the Daily Telegraph setting out clearly what was involved in the Corpus Juris but it became apparent, I suppose, that such an article would not interest the readers of that paper and, sadly, his offer was not accepted.
It is important to realise that what this report and the study were concerned with and, therefore, what your Lordships' sub-committee was concerned with, was limited entirely to the issue of financial frauds committed across frontiers against the Community finances. It was that and nothing else. The suggestion is totally misconceived that if your Lordships were to go at some time in the near future to sit in Court 1 at the Central Criminal Court, you would find the spectacle of the judge conducting the whole proceedings on an inquisitorial basis, with the lawyers occupying very much of a back seat and the jury box having been dismantled completely by enthusiastic carpenters. That is certainly no part of any proposals by the European Commission. Of course, I cannot be responsible for whatever our Home Secretary proposes in those directions.
In those circumstances, your Lordships' sub-committee reached the conclusion, with which I hope that your Lordships will agree, that this study was a serious contribution to consideration of possible ways of dealing with a very serious problem. The committee reached the conclusion also that certainly at this time, in the present atmosphere, it was not possible for us to take the matter further by recommending it or approving it in any way and that there were alternative ways of dealing with those grave problems.
6.52 p.m.
Lord Norton of Louth: My Lords, I too very much welcome the report. Like the noble Baroness, Lady Goudie, and the noble Lord, Lord Wigoder, I too am a member of Sub-Committee E. I too pay tribute to the work of the chairman, the noble and learned Lord, Lord Hope of Craighead, and our excellent staff.
I note also that the noble Lord, Lord Goodhart, who is yet to speak, is also a member of the sub-committee and that the noble Lord who is to reply
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from the Government Front Bench, the noble Lord, Lord Bach, was a member of the sub-committee at the time that the report was drawn up, which bodes rather well for the response from the Front Benches. I hope that my noble friend Lord Cope will not feel too isolated in this debate.
I begin by making a general point. This report, along with other reports from the European Communities Committee, which your Lordships have had the opportunity to debate, demonstrates the value of the committee work of this House. There is a marked contrast between our approach to domestic legislation and our approach to European legislation. Yesterday, I spoke in the debate on the gracious Speech. I drew attention to the fact that we do not usually employ investigative committees for the consideration of government Bills. As a revising body, this House is extremely good, indeed extraordinarily good. It adds value to the legislative process. It could be even better through making greater use of Select Committees.
In the sphere of European legislation, your Lordships' House works principally through a Select Committee. The work of that committee shows what can be achieved through inquiry by committee. It enables a particular subject to be considered in depth; for evidence to be taken from interested parties; and for a considered report to be produced informing debate not only in your Lordships' House but also in other political arenas.
It may be a cause for regret, but it is none the less true, that a report from a committee of your Lordships' House, widely disseminated, will reach a much wider audience and may have a greater impact than a debate in your Lordships' House.
The value of such committee work could not be better demonstrated than by the report which we are considering today. When the proposals for a common criminal code, the Corpus Juris, were published, as we have already heard, they attracted coverage in the media which contributed only partially to one's understanding of what the proposals were. I make no particular complaint about that. Complex proposals are difficult to summarise in a few words, especially by those who do not have a background in the subject, although I note, as the noble Lord, Lord Wigoder, has already mentioned, some of the coverage generated more heat than light.
But before we criticise the media too much, let us consider what type of debate we should have had in this House had we debated the Corpus Juris proposals without the benefit of this report. I know that we should have had some informed contributions but we should be lacking the advice and information of many with expertise in the field. The material drawn together in the report is substantial, as much in quality as in quantity, and any debate would be the poorer without it.
Much can be learnt from how we proceed in dealing with European legislation. We can and should make greater use of committees, not to compete with but to complement our existing procedures.

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I turn now to the substance of the report. As has already been mentioned, there can be little doubt that the Corpus Juris proposals address a major problem. Fraud on the Community's finances takes place on an extensive scale. The noble and learned Lord, Lord Hope of Craighead, has indicated already the evidence that we received. Official figures suggest it is about 1.4 per cent of the Community's budget, but one estimate that we received is that it is about 10 per cent; in other words, well in excess of £5 billion per year. If that figure is correct, it is staggering.
There is thus a problem which is massive in scope which requires action, and immediate action. The proposals for Corpus Juris, drawn up, as we have heard, by a team of legal experts, represent a genuine attempt to address a real problem. One can appreciate the motivation for the proposals; in many respects, one can appreciate the case made for them. As the noble and learned Lord has already mentioned, we took evidence from two of those responsible for the proposals and they made good witnesses.
However, the proposals as they stand are flawed. The limitations are adumbrated in the report. One of the strengths of the report is the way in which they are clearly and concisely laid out. Given that, I do not want to dwell on them too much. As is made clear in the report, the proposals lack a clear legal basis. The European public prosecutor would be largely unaccountable to an elected body; there are problems as to the feasibility and the acceptability of the proposals at national level; and the problem of dealing with fraud committed outside the European Union is not adequately addressed.
Indeed, the problems are very well summarised by looking at the headings in Part 3 of the report: the Corpus Juris is not popular; it lacks a proper treaty base; it is not practical; and it is defective and incomplete. Clearly, the Corpus Juris is not, at the moment, the way forward.
What is the way forward? The report considers alternatives and I want to draw out what I consider to be two very positive features deriving from the report. The first is a need for a twin-track approach. Not only must rigorous mechanisms be in place to ensure that those who commit fraud are detected and prosecuted but also rigorous mechanisms need to be in place to prevent fraud occurring. Several witnesses drew attention to procedures which could be employed to cut down on fraud on the Community budget. Several major initiatives are now under way although I was struck by evidence which suggested that some fairly modest reforms could have a considerable impact on preventing fraud.
In terms of transit fraud, for example, we were told that the introduction of a computerised system costing a fraction of the cost of the lost revenue could eradicate most of this loss. In view of recent events, the need for stronger discipline within the Commission to prevent fraud is now recognised.
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The second requirement is for a "bottom up" approach. Witnesses were sceptical of the "top down" approach represented by the Corpus Juris proposals. They recognised that co-operation between national authorities represented a more feasible and acceptable way forward. One of the problems that clearly came across was that there has been a lack of co-operation. However, what came over in evidence was the extent to which that is now changing. The report draws attention to three developments in particular: a judicial network, peer review and joint action.
What also came over in evidence were other practical proposals that could and indeed should be pursued. The report mentions, for example, extending the use of fiscal liaison officers. It goes on to state that that might require a moderate increase in resources. Given the sheer scale of the problem, I believe that a moderate increase in resources is more than justified. In the context of national co-operation, the role of the Commission should perhaps be one of encouragement, not imposition.
In conclusion, the problem addressed by the report is clearly a major one. That is indisputable. The question is, how does one address that problem. The Corpus Juris proposals are not the answer, for the reasons given in the report. A "twin track" and "bottom up" approach is a more feasible response. However, as is abundantly clear from the report, there is still a great deal to be done, including that to be done by the British Government in order to implement these approaches. It is vital that the Government not only commend the report but also act upon it. I hope that the committee will return to the subject at some future date. From the evidence we took, two things are abundantly clear. The need for action is urgent and there are absolutely no grounds for complacency.
7.4 p.m.
Lord Pearson of Rannoch: My Lords, I join others in congratulating the noble and learned Lord, Lord Hope of Craighead, and his committee on this succinct and well-balanced report. However, I intervene because I do not quite share the confidence of the noble Lord, Lord Wigoder, on the low status of the Corpus Juris project in Brussels.
I say that because last week I was speaking to an MEP who sits on the European Parliament's committee which is considering this project; no names, no pack drill. However, he tells me that there is a serious enthusiasm in Brussels for Corpus Juris and a determination to promote it. That would fit with the views of those of us who believe that the European Union really does want to end up as a superstate one day and has determinedly set its face against the Europe of nations collaborating together which so many of us would prefer. That, for instance, is why the EU aspires to have the common foreign and defence policy, because a state needs that.
It is not, therefore, unreasonable to believe that, at the end of the day, there is similar enthusiasm for a common legal system, down the road to which this seems to many of us to be just the first step. Over the

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years we have often been told first that an EU initiative does not really exist. Then we are told that it does not really matter; it is only being discussed. Before we know where we are it has happened, and then it is too late because we should have been alive to it earlier.
Lord Tordoff: My Lords, I thank the noble Lord for giving way. Is not that precisely what the report is about; namely, drawing attention to this Parliament and the Government so that those fears can be assuaged? While I am on my feet, perhaps I may say that if the noble Lord is to quote someone, he should tell us who it is, in this privileged place. To produce evidence and no names is unconvincing.
Lord Pearson of Rannoch: My Lords, of course. I was merely trying riot to ruin the career of the poor young MEP in question. However, if the Chairman of your Lordships' Committee requests me to do so, it is Daniel Hannan, who I believe is MEP for the south-east of England. I welcome the noble Lord's intervention. It brings me to the question I was about to raise.
I do not believe that this project will go away. Even the noble and learned Lord, Lord Hope, indicated as much. I absolutely welcome the way forward which the Government are pursuing. However, on reading paragraphs 115 to 118 of this excellent report, my question to the Government is that there seems to be some doubt about the treaty basis of this project. Does Corpus Juris lack a proper treaty base? Are the Government absolutely sure that at the end of the day, as this project develops, if it does, the United Kingdom could veto it, if it comes to that?
7.5 p.m.
Lord Goodhart: My Lords, like other speakers in the debate who were members of the committee, I pay tribute to the noble and learned Lord, Lord Hope of Craighead, for the admirable way in which he chaired our meetings and oversaw the production of the report.
I first became aware of the existence of the Corpus Juris just over a year ago. That is when I was invited to attend an inter-parliamentary conference on the fight against fraud on the European Union budget. That conference was attended by Members of the European Parliament and of national parliaments. The UK was represented by a Conservative MP, Mr Humfrey Malins, myself arid a number of MEPs. There were representatives present from all but two of the member states of the EU.
One of the main subjects of debate at that conference was the Corpus Juris. As the noble and learned Lord, Lord Hope of Craighead, said, the Corpus Juris was drafted by a team of academic lawyers, including Professor John Spencer of Cambridge University, and published as a discussion paper, not as a proposal for action. The reception given to the Corpus Juris by the inter-parliamentary conference was mixed. It certainly received a fair amount of support. However, there were also widespread criticisms of it, especially from
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representatives of the United Kingdom and other north European states. I left that conference convinced that if the views of the delegations were representative of the views of the countries from which they came, the Corpus Juris, certainly in anything like its present form, stood no chance of adoption.
Nothing since has made me change my mind on that. I have to say that a few days later I read an article in the Daily Telegraph. I cannot remember whether it was an article by, or an interview, with Mr Malins. It was only then that I realised that he and I appeared to have attended different conferences. The conference which I attended consisted of a serious discussion of an interesting set of proposals for dealing with the undoubted problem of fraud on the European Union's budget. Those proposals were widely seen in that conference as over-ambitious and unrealistic.
The conference attended by Mr Malins was an attempt, masterminded by the faceless bureaucrats of Brussels, to destroy habeas corpus, put an end to jury trials, and subject us to the unspeakable horrors of continental legal systems. In the eyes of Euro-paranoiacs, the Corpus Juris has become evidence of a sinister plot to undermine and destroy our legal system. I have to say that belief in such a plot is no more justified than belief in the authenticity of the protocols of the elders of Zion.
Nobody can doubt that the fraud problem is extremely serious. I believe that there is a strong case for harmonising the substantive laws on fraud on community finances. Speaking for myself, I would broadly welcome Part I of the Corpus Juris which seeks to establish a common set of offences covering fraud on the European Communities wherever those offences are committed. The proposal certainly goes too far in some respects, particularly in making the head of a business criminally liable for the dishonest acts of his subordinate, where the head of the business has merely failed to exercise proper supervision and has not acted dishonestly.
It is the procedural rules in the Corpus Juris which are much more controversial. It is neither practicable nor appropriate to have a European public prosecutor's office in each member state operating in the national courts, but operating under its own laws and procedures yet not being accountable to the government of the state in which it is operating. It is not acceptable to remove the right to jury trial for Community fraud cases so long as juries are retained for other sorts of case. It is not acceptable to provide for remand in custody without charge for a period of six months, extendable for a further three.
Jury trials could probably be put back into the Corpus Juris, and remand without charge taken out of it. They are not essential to the project. But the centrepiece of the system—the European public prosecutor—working through separate but parallel systems in the same courts is unlikely to prove workable, and without that the Corpus Juris would have to be completely rewritten.
I believe that the report of our committee is balanced and fair. We do not believe that at the present time the Corpus Juris offers a practically feasible or

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politically acceptable way forward. The noble and learned Lord, Lord Hope of Craighead, drew attention to our alternative proposals. In particular, we call for more effective mutual assistance between member states, and for ratification of the 1995 convention on the protection of the European Community's financial interests and its protocols.
One issue that should be considered outside the Corpus Juris is the modification of the highly technical English rules of admissibility of evidence. They create unnecessary barriers to the introduction of evidence taken in other member states for use in English trials. We were told in evidence that at least one major prosecution had collapsed because vital evidence was ruled inadmissible on technical grounds.
I should like also to draw attention to a subject mentioned in the report but not touched on in this debate; that is, the question of Eurobail. In some countries, foreigners find it extremely difficult to get bail because of the risk of their not appearing at trial if they are allowed to return to their home countries elsewhere in the European Union. Under a Eurobail system, which would not be limited to charges of Community fraud, defendants on bail who were residents of another member state would be automatically arrested and returned by the authorities of their state of residence to the state of prosecution if they failed to turn up for their trial. That would make the judicial authorities much more willing to grant bail to residents of other member states of the European Union.
This is a useful and important report. I hope that those noble Lords present this evening who were not members of the committee—that is perhaps rather fewer than those who were—come to the same view.
7.13 p.m.
Lord Cope of Berkeley: My Lords, I too am grateful to the noble and learned Lord, Lord Hope of Craighead, and his colleagues on the committee. As my noble friend Lord Norton of Louth said, I thought I would be exclusive in being the only speaker who was not a member of the committee. However, I had the support of my noble friend Lord Pearson so that did not materialise. However, I am sure I speak for the whole House in thanking the committee for the extremely detailed work it did in producing this report and for the measured way it sets out both what the Corpus Juris is about and its conclusions on it.
I was particularly pleased this afternoon to hear support for the jury system from all sides of the Chamber, which is a matter to which we will return in another context. But on the main question before us, no one can doubt that there are extremely serious problems which lie behind this proposal. The noble Lord, Lord Wigoder, referred to the Court of Auditors' report for 1998 which was published a few days ago. That makes serious reading. I was an auditor at one point and they are as much concerned with fraud as with inefficiency.
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Speaking as a chartered accountant, though I have not practised for a long time, I can say that auditors are necessary. However, their existence does not eliminate fraud, though hopefully it helps to minimise it. Fraud is not something which can be eliminated. It can be and should be fought and minimised, but it is a continuing battle. Every time one loophole is closed then expert and clever fraudsters look for the next one.
The fact that a serious problem exists, as every speaker in the debate recognised, does not mean that any solution is therefore acceptable or that it will work. The Corpus Juris idea seems to stem from the proposition that it is no use trying to work through different legal systems and getting them to work together, across boundaries within the Union, when those boundaries for other purposes are ceasing to exist; and that instead one should impose a new, though not completely new, and extensive system on top. I believe that idea to be fallacious.
First, the United Kingdom demonstrates that different legal systems—we have three, as the noble and learned Lord said—can co-exist and that fraud, and other offences, can be successfully prosecuted within those systems. We have had distinguished lawyers from at least two of the jurisdictions speaking in this brief debate and I believe the noble and learned Lord is also distinguished in the Northern Ireland field.
Secondly, if the Corpus Juris were to be adopted in this form or something like it, it would impose two systems on each member state—the Corpus Juris itself pursuing one lot of fraud and national laws pursuing other types of fraud. And fraud cannot be compartmentalised quite that neatly. Of course, some frauds are solely devoted to defrauding the Community and others are devoted to defrauding other people or other institutions, but there is a considerable overlap at the margin. Quite often one crime involves others. Also, the idea does not get away from the fact that two systems would still be involved.
Thirdly, the system ignores the fact that organised international crime is not confined to the European Union. That comes out in parts of the report. It is not necessary to go over the report in detail; it was expertly summarised for us by the noble and learned Lord in opening the debate and it is there for all to read. But I agree that it is valuable because of its expert, though moderate language. It does not fall into the hysterical category mentioned by the noble Lord, Lord Wigoder, and is all the more forceful because of that. It would be nice to think that this Select Committee report will kill off the idea as it now exists. I think it certainly ought to be studied in Brussels.
As the noble Lord, Lord Wigoder, pointed out most effectively, the fact that it is unofficial at this stage means that this is the moment when we should draw attention to the unacceptability of this set of proposals. I hope that United Kingdom MEPs will draw the report to the attention of their colleagues in the European Parliament, so that they realise the position.

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I hope that the Minister will be able to tell us that in the Government's view no further time should be wasted down what seems to be a blind alley. It is not just a question of not wasting time; the difficulty is that studying the Corpus Juris, with it unacceptable characteristics, especially the prosecutor—here I agree with the noble Lord, Lord Goodhart—and pursuing such proposals distracts people from paying attention to what should really be done.
I do not wholly subscribe to the views expressed from the Liberal Democrat Benches about the question of a "plot" to start with the Corpus Juris and open it up. As pointed out by my noble friend Lord Pearson of Rannoch, there are those who see this as the beginning of a much wider affair. If the authors of the report did not wish it to be perceived that way, they should not have given it such a grandiose name. As the noble and learned Lord said, that refers back to a much wider system. I am not a lawyer but, as I understand it, that refers back to a much wider system of law covering many more matters. To choose that name for this proposal is to open it up to misunderstanding. Therefore, to a considerable degree, it is their fault that it is seen in this way by many people.
If the Corpus Juris is not acceptable as it is, what else should be done? I do not want to take the time of the House for too long on the matter. After all, Commissioner Kinnock is working on the problem and will report before long. No doubt we shall all have the benefit of more views and then be able to take the matter further. Some of us think that it is a little like a member of the poachers' union advising on the working instructions for the new gamekeepers. But, still, we shall wait and see what is said.
It seems to me that an anti-fraud office in Brussels should he independent of the Commission. In this country we accept without question the operational independence of the police, and the situation that we are now discussing is similar. Therefore, I do not believe that that proposition will attract much opposition in this country. I also think that the European Parliament needs to strengthen the Budgetary Control Committee. The lines developed in another place with the Public Accounts Committee over many years would provide a suitable basis.
I had some involvement with the European budget when I held responsibility for it for a while in the Treasury. I negotiated with the European committees during our European presidency. That was some years ago, but I do not think that they have improved much since then. I also had some experience of international anti-fraud operations as part of the responsibilities which I held for a while for Customs & Excise. Customs co-operation agreements were developed with all sorts of countries around the world, which certainly improved the situation in the fight against fraud. However, they did not solve international fraud—indeed, as I have said, that is not a possibility—but they went much further than the European Union. Of course, in particular
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commodities, and so on, and in certain types of fraud with which Customs were concerned, different groups of countries were relevant.
The point about fraud being larger than the European Union itself is an important one. It is one of the difficulties of the Corpus Juris that it is intended to be limited to the EU. It is noteworthy that one of the basic agreements in this field is the European convention on mutual assistance in criminal matters of 1959, which is not an EU convention; it is a Council of Europe convention. After all, there are now 40 countries in the Council, although I am not sure that they have all signed up to the convention. I believe that the way forward in combating fraud both within the EU and wider is mutual recognition and co-operation between the national authorities.
I hope that this excellent Select Committee report will help to avoid further distraction in the direction of the Corpus Juris. When I say "hope", I am aware that one does need a good deal of hope if one is thinking that that is exactly what will happen. Nevertheless, that is what I believe should happen. We are all extremely grateful to the Select Committee for this report.
7.25 p.m.
Lord Bach: My Lords, I understand that it is customary to congratulate all the members of the Select Committee who drew up the report under debate upon their skill, hard work and general all-round perspicacity. But I hope that your Lordships will forgive me if I do not indulge in this general paean today. As your Lordships know, I was fortunate enough to be a member of Sub-Committee E as it heard evidence, reached conclusions and completed the report. Therefore, it would look suspiciously like self-congratulation if I were to go into raptures about the general quality of the whole committee. Although self-congratulation is not entirely unknown in your Lordships' House, it should perhaps be rather more subtle and under-stated that such a declaration would be.
More seriously, I can tell noble Lords that it was a real privilege to serve under the chairmanship of the noble and learned Lord, Lord Hope of Craighead, and to be in the company of, and work with, such distinguished Members of your Lordships' House, both lawyers and non-lawyers, as those who made up the sub-committee. I am delighted as well as perhaps a little personally relieved to be able to say that Her Majesty's Government agree for the most part with the conclusions of the sub-committee. Perhaps I may add what has already been said by several members; namely, that the sub-committee was extremely fortunate in the quality of the assistance that it received from its staff, especially from Dr. Kerse.
The problem of fraud and corruption involving the institutions or finances of the European Community is a very serious one which damages public confidence in the integrity of the Community as well as causing the loss of large amounts of taxpayers' money. The Government want to see strong and effective action

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taken to combat this type of fraud. As I shall endeavour to explain, the Government have taken a number of initiatives to strengthen European co-operation in this area in view of the cross-border nature of much financial crime. In particular, the recent European Council meeting at Tampere strongly endorsed the United Kingdom's initiative on mutual recognition of judicial decisions.
The question is whether the package of proposals known as Corpus Juris would be a useful and feasible way of fighting fraud. We have had explained to us in extremely clear terms the background to the production of the report in 1997. It has been described as a "very green paper", which is perhaps the best description of it; indeed, that point was made by the noble Lord, Lord Wigoder. The Corpus Juris proposals envisage far-reaching changes to judicial co-operation with the EU. The key proposals that we have already heard about are the creation of what would amount to a European penal code for fraud offences affecting EC finances; a common procedure for investigating and prosecuting these offences; and, perhaps most significantly, a European public prosecutor to oversee investigation, prosecution and the enforcement of penalties.
A number of the proposals would obviously conflict with the legal traditions of many member states, including the United Kingdom. As has already been said, the European Commission has asked its experts to carry out a further study to assess the extent to which the Corpus Juris recommendations are feasible and necessary. As I understand it—I wish that I could be more exact about this—the report is likely to be published shortly. I understand that it is to be submitted shortly to the European Parliament and to the Council of Ministers. I understand that it will offer a revised version of the proposals which takes account of some of the concerns expressed in member states.
I add here, in regard to remarks made by the noble Lord, Lord Cope, and other noble Lords, that, as I understand it, our report has been read by the European Commission, which may well pay regard to what we say when it considers the future of the Corpus Juris. Of course the Commission and the Council of Ministers will decide whether and how to pursue this concept.
But what is the Government's position on the document as it stands? The Government fully agree with the objective of the Corpus Juris paper, which, in trying to provide more effective judicial remedies against fraud, is commendable and worthy. However, we do not agree that this objective should be achieved by "unifying" the laws and procedures of all member states, or by creating a European public prosecutor with the powers proposed in the report. We have a number of concerns which relate mainly to the proposals on criminal procedure (part two) rather than criminal offences (part one). I deal with these briefly because they have been covered in a remarkable spirit of unanimity by all who have spoken tonight.
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First, in seeking to unify the laws and procedures of member states in cases of Community fraud, Corpus Juris would effectively create a separate criminal jurisdiction within each member state. The noble Lord, Lord Cope of Berkeley, made that point. Secondly, it would insert inquisitorial procedures into what is a largely adversarial system, especially in England and Wales, raising fundamental issues for procedure in criminal trials.
Thirdly, Corpus Juris would change key provisions of the European Union fraud and corruption conventions. We would not wish to support proposals to amend these provisions before they have been brought into force and given a proper chance to have an impact. Fourthly, as the need for it cannot be clearly demonstrated, it is the Government's view that Corpus Juris conflicts with the principle of subsidiarity.
Fifthly, a European public prosecutor would have power to direct investigations and prosecutions, to request a person's detention without charge for up to nine months and to oversee the execution of sentences, and yet would have little, if any, domestic accountability either to Parliament or to United Kingdom judicial authorities. That point was well made by my noble friend Lady Goudie. That would represent a departure from the position which was agreed in the Amsterdam Treaty, according to which the application of criminal law remains within the competence of member states.
Finally, we agree with the committee's finding that Corpus Juris has no proper treaty base. Under Article 280(4) of the EC Treaty, the Community cannot adopt anti-fraud measures which concern,
"the application of national criminal law or the national administration of justice.
I comfort the noble Lord, Lord Pearson, further. It is right to say that any change to that would have to be unanimous.
Lord Pearson of Rannoch: My Lords, I am grateful for what the noble Lord has just said. Do the Government have the same confidence about the other possible hooks in the treaty upon which this eventual project might be hung, leaving aside new Article 5 of Amsterdam, subsidiarity and proportionality, in which some of us have no faith at all? There are other articles in the treaty which are mentioned—for instance, in paragraph 118—as possible hooks on which we could be outvoted. Perhaps the noble Lord will write to me in due course, but I think that it is worth covering that point while we are at it.
Lord Bach: My Lords, I understand the point that the noble Lord makes. Essentially it seems to us that the first hurdle—it is rather a large hurdle—that the Corpus Juris would have to get over is Article 280(4).
The Government therefore agree with the conclusions of the European Communities Committee's inquiry; namely, that Corpus Juris does not offer an acceptable way forward. I wish to echo what the noble and learned Lord, Lord Hope of

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Craighead. said. Although we do not think that the present proposals are either practical or necessary, the Government believe that some appreciation is due to the authors of the original Corpus Juris proposals because their effect has been to concentrate minds and to give further impetus to finding practical solutions to the real problems of fraud as regards Community finance. In the remainder of my speech I shall make some comments about what the Government have been doing in terms of finding practical proposals to address this problem.
Noble Lords will not be surprised to hear that in place of Corpus Juris the Government believe that judicial co-operation between member states should be strengthened on an intergovernmental basis, as stipulated by the Amsterdam Treaty. Perhaps the best way to express this is the way that the former Home Office Minister in another place, Ms Kate Hoey, used in giving evidence to the committee. In talking of the Government, she said at paragraph 94 of page 24 of the Select Committee's report:
"We fully support co-operation across the European Union to promote common standards in relation to justice and the rule of law and particularly to fight against organised crime, corruption and fraud".
The next sentence is perhaps the best way of expressing the matter. She said:
"We … support co-operation between jurisdictions rather than creating a single jurisdiction".
This does not mean that we should be content with half-measures. Traditional co-operation under international conventions has not solved the problem, so we need to look for more radical solutions. The Tampere European Council last month pointed to new ways to make progress. In particular, it strongly endorsed the United Kingdom's initiative on mutual recognition and enforcement of judicial decisions, agreeing that this principle should become the "cornerstone of judicial co-operation" within the Union, and asked the Justice and Home Affairs Council and the Commission to adopt a programme of measures to achieve this by December 2000—now only 12 or 13 months away.
The Government launched the idea of mutual recognition last year during our presidency of the European Union, and the Home Secretary developed it further in a speech at the Avignon Seminar on the European Judicial Space in October last year. We included it in the United Kingdom's position paper for Tampere. Rather than trying for a unified criminal code, the aim will be to enforce judicial decisions even though they have been taken under different rules. We believe that this offers scope for a more realistic approach to securing significant improvements in co-operation.
I shall say a few words about what we mean by "mutual recognition". The concept of mutual recognition is modelled on mutual recognition of rules and standards for goods and services exchanged in the single market. Mutual recognition is the principle that different national standards should be treated as equivalent. In this case, decisions or orders issued by a criminal court in one EU member state, based on its
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legal system and procedures, would be recognised by another member state and could be enforced there. The key underlying concept is the principle that member states of the EU should be able to have full confidence in each other's legal systems.
What this means in practice is that certain decisions in criminal matters made by a foreign EU court could be directly implemented in other member states with minimum formality, and ultimately without having to be approved by a court in the requested country, as happens now. An example would be fast-track extradition whereby people who are given bail to return to their home country, but then fail to turn up for trial in the country where they stand accused, could still be prosecuted without the need for lengthy extradition procedures. The "Eurobail" concept mentioned in the debate, which the European Parliament has supported, would benefit those of our citizens who are arrested in other member states.
The Government have made clear that the recognition of court orders and warrants issued in other member states will need to be accompanied by adequate safeguards for the individual, and those safeguards will need to be agreed between the member states. All the legislation in this area will need to be adopted by unanimity. We will consult Parliament and other interested authorities fully in the process. This will take time, but Tampere has given the work some momentum and the Government will be pressing our partners for early progress. A mutual recognition will sit alongside a continued programme of selective approximation of key offences in order to ensure that all member states have adequately criminalised the most important forms of cross-border criminal conduct.
The agreement at Tampere to create a "Eurojust" institution, made up of prosecutors and investigators seconded from the member states, will help to overcome the sometimes slow and cumbersome procedures between member states. We hope that Eurojust will facilitate co-ordination between national prosecuting authorities, support national criminal investigations into organised crime and co-operate closely with the European judicial network. We do not believe that Eurojust's remit should or will be confined solely to EU fraud.
I shall deal with, as shortly as I can, a number of additional initiatives. The Council called for the establishment of a European police chiefs operational task force to exchange, in co-operation with Europol, experience, best practices and information on current trends in cross-border crime. There is to be a European police college for the training of senior law-enforcement officers. The noble Lord, Lord Norton of Louth, referred to fiscal liaison officers. He will be happy, I hope, to hear that the Government support the idea of fiscal liaison officers being appointed.
There are other measures, too. We particularly welcome the establishment of OLAF, the European anti-fraud office which has taken the place of UCLAF. We bear in mind the point made by the noble and learned Lord, Lord Hope of Craighead, that there is

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still some way to go in regard to that. We would like to see it more fully develop its investigative role within the Community institution. We will be urging it to develop an effective working relationship with national prosecutors.
The members of the subcommittee will, I hope, be pleased to hear—they almost certainly already know it—that the concern shown about the delay in ratifying the convention on protection of the Community's financial interests of 1995 need no longer be a concern. The Government have now ratified this convention, with all of its protocols, and also the EU convention of 1997 on the fight against corruption.
EU negotiations are under way to modernise the Council of Europe Convention on Mutual Assistance 1959. This is an important step. For example, the draft convention will require evidence to be collected in accordance with procedures required by a requesting state to ensure its admissibility. The draft convention also provides for new forms of co-operation, such as the use of live video links for taking evidence and the use of joint teams.
A programme of mutual evaluation is currently under way to assess each member state's performance as a mutual assistance partner. The evaluation reports identify weaknesses and recommend improvements. An evaluation of the United Kingdom is planned to begin in February next year. I am happy to be able to tell the House that the Home Office's Judicial Co-operation Unit has engaged an expert from the Serious Fraud Office—a person experienced in European judicial ways, prosecutions and mutual assistance matters—to review our mutual assistance procedures.
In conclusion, it must be obvious by now that the Government agree with the view of the subcommittee and of the committee above it that energy and resources would be better directed towards increasing mutual legal assistance and practical co-operation between EU member states, rather than seeking the erection of a unified criminal code.
Thanks are due to the subcommittee for producing the important report that we have debated. In the Government's view, it has undoubtedly given a momentum to dealing with a very serious problem.
7.45 p.m.
Lord Hope of Craighead: My Lords, I am extremely grateful to all noble Lords who have spoken in the debate. I am also grateful for the very kind remarks that they have made. The Minister was understandably diffident in expressing the usual thanks to all members of the committee in view of the fact that he participated in the entire course of the deliberations which produced this report. Perhaps I, as chairman, can step into the breach that he has left and express my thanks to all members of the committee, present and not present, for their support and for the
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diligence with which they studied this very interesting subject. As the Minister mentioned, I also extend my thanks to the staff, particularly Dr Kerse, without whom the report would have been a mere shadow of what we have before us today.
I think it was the noble Lord, Lord Norton of Louth, who said that he feared the noble Lord, Lord Cope of Berkeley, might feel that he was isolated in this debate. I am bound to say, having listened to his very interesting contribution, that that was far from the case. He deserves our thanks for the care with which he studied the report and the points which he made having done so.
A number of very interesting points were made in the course of this useful debate. I shall mention just two or three to sum-up the matter. The noble Baroness, Lady Goudie, mentioned the need to simplify extradition procedures. I believe that this is something which deserves a great deal more attention. It is known that some member states within the European Union do not extradite their citizens. That has a bearing on the reaction of some courts to bail. It also has a bearing on the very difficult and somewhat ill-defined and disorganised system of extra-territorial jurisdiction. In due course, Sub-Committee E may have to return to these issues. They are of very great importance and deserve to be tidied up.
I am particularly grateful to the noble Lord, Lord Wigoder, for the three points that he made in order to set the Corpus Juris project into its proper context. The question of balance is very important. It is easy to react against the proposal and to feel that in some way our system is being invaded by suggestions which are so out of keeping with our own system, but I do not believe—I do not think any members of the committee who listened to the evidence believed—that that was the right way to approach a well-intentioned, very carefully thought through and well-explained proposal. The point made by the noble Lord is absolutely right: it is a serious contribution to the debate—which is still going on—as to how to deal with a very serious problem. One is bound to approach the project against that background. Having heard the witnesses, I think we were all convinced that a great deal of serious work had been done in order to solve what everybody agreed was a remarkably difficult problem throughout the Union and beyond.
As to the point made by the noble Lord, Lord Goodhart, I share his view that if one looks at the two chapters of the report, by far the most difficult is the one which deals with procedural rules. We all know from looking at international conventions which deal with terrorism and the like that we can find ways of harmonising our substantive laws. Indeed, there are ways in which we can make progress in removing some of the technical rules about evidence— which I believe is being done, step by step—to assist prosecution across national boundaries. That kind of harmonisation, if that is the right word to use, is not in principle objectionable. The serious question of

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procedure is in issue. The noble Lord, Lord Cope of Berkeley, said exactly the right thing: that it was really a risk of creating two systems within one which were incompatible with each other. The United Kingdom may be described, to echo a phrase which was used in connection with Hong Kong, as one country with three systems, but these are three systems which do not trespass upon each other: they work in harmony.
That brings me finally to the point made by the Minister about mutual recognition. I said in opening that I thought that we in the United Kingdom had something to contribute to this debate. As it happens, in the Appellate Committee this term we have had two cases which have raised very interesting points about mutual recognition between countries in the British Isles. The first was a case called Ellis, which dealt with the system which exists between Ireland and the United Kingdom for the backing of warrants for arrest. That is a good example of a system whereby an arrest warrant, which is a judicial decision in one country, can be enforced in the other simply by backing the warrant. It is based on a mutual confidence in each other's systems, which was precisely the point that the noble Lord was making.
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The other case is one which has not yet reached the point of decision: a case called The Metropolitan Magistrate of Manchester ex parte Granada Television, which deals with a similar issue. That is to say, it concerned a system of search warrants between England and Scotland. There is an Act of 1881 which allows for search warrants issued by judges in each country to be endorsed in the other. These are the kinds of system with which we have lived with a great deal of success in the United Kingdom for a very long time, and they provide an example of the kind of point the Minister was making about how we can contribute to the debate in the Community.
It has been a very stimulating debate for me to listen to, and I am delighted that the Minister has been with us to join again in our discussions. I hope that our contributions, both in this debate and in the report, will help in the months ahead as we have to look further into this problem. I commend the report to the House.
On Question, Motion agreed to.
House adjourned at eight minutes before eight o'clock.